Durban - Top economists urged South Africans to sit tight and stop spending as China suspended its stocks for the second time this week, sending the rand into free fall.
Yesterday, the Shanghai Composite Index fell by more than 7%, creating massive panic in world markets.
The Top40 index on the JSE was 2.18% down on the previous day’s close.
The rand passed the landmark R16 to the US dollar mark, before recovering slightly to R15.97 late yesterday.
This was a 0.68% decline on Wednesday’s price. It also fell 1.47% against the euro to around R17.35, and by almost 0.5% against the British pound to around R23.31.
The biggest losses were in the banking and platinum sectors.
Clive Coetzee, the lead economist at the KwaZulu-Natal provincial Treasury, cautioned South Africans to stop spending and to prepare themselves for a rough 2016.
“We are in for a terrible year. The rand will go into free fall. We will have to wait and see how that plays out on the rate of inflation.
“Interest rates will definitely go up. We should be paying lower prices for oil, like the rest of the world, but we are not. Food prices will increase, affecting the poor,” he said.
Coetzee said that what really concerned him, though, was the domestic situation.
“We are heading into local government elections. I think we are going to see a lot of unrest between now and then. Also, many South Africans are oblivious to what’s going on in the economy.
“They have overspent during the Christmas season and are heavily indebted. It’s going to become a real problem when they have to start paying back, particularly as interest-rate hikes are inevitable.”
Leading economist Mike Schussler said the impact of the Chinese disaster had already affected the rand, but what was more concerning was the impact it would have on government debt.
“This is going to influence the amount of money government will have over time to spend on services, education and infrastructure plans. It’s going to impact heavily on how government delivers,” he said.
Schussler said President Jacob Zuma’s axing of finance minister Nhlanhla Nene had made South Africa more vulnerable to the Chinese market shocks than most other countries in the world.
“Similar to the Japanese market collapse in 1989, China’s economy has run its course,” he said.
While South Africa’s mining sector and tourism industries had been expected to benefit from the weakened currency, only the former had made gains.
“The weak currency has helped lift the value of gold, and it’s keeping the platinum sector afloat, but only just. We haven’t seen the 10% increase in tourism numbers to the country as predicted,” he said
But Schussler said it was the poor who would be affected the most.
“We are having to import yellow maize because of the drought. The price has increased by 70%. That means the price of chicken will go up. The fuel price is going to go up as well. That will affect the price of paraffin.
“These are all items that the poor are dependent on,” he said.
He warned that South Africa’s stricken economy could also result in South African companies taking their operations across the borders.
While Coetzee and Schussler agreed that South Africans were in for a turbulent 2016, they also agreed that the good times would come again.