Gloom and doom ... except for the oil price

If you thought 2015 was
challenging, then this year will
be on an entirely different level,
according to Luke Doig, senior
economist at Credit Guarantee
Insurance Corporation.
“Global geo-political risks
are expected to continue to rise
in 2016,” he added. “And, when
combined with increasing geoeconomic
risks, this makes for
a dangerous cocktail.
“It implies headwinds for
global trade and for emerging
markets. Taken together with
our weak domestic outlook,
the prospects for 2016 appear
bleak at best.”
Doig noted that the
agricultural, mining and
manufacturing sectors
remained mired in recession,
with a survey last week
showing private sector activity
had shrunk at a faster pace
in December, with output
dropping. Disposable incomes
are under increasing pressure,
and hence the wholesale and
retail trade outlook is gloomy.
While the impact of the
drought is not yet apparent to
consumers – it certainly is to
farmers and producers. The
expected need for 3-5 million
tonnes of maize imports is
certainly going to see sharply
higher food inflation – helped
along by the rand having lost
almost 23% against the US
dollar in the last three months,
and almost 40% since the end
of 2014.
“This,” he added, “will
increasingly force sellers to
destock and/or pursue greater
just-in-time ordering.
“And unfortunately, despite
this massive price advantage,
exporters cannot expect a free
ride.”
Amended legislation
regarding e-tolls and licences
may well also see these costs
escalating sharply.
“One small saving grace
is the weaker oil price,” Doig
said, “which is causing an
accumulated (to January 6)
over-recovery on diesel to the
order of 80c/l – although this
is crimping fast as the currency
weakens to R16/$. For petrol
prices the accumulated underrecovery
is around 21c/l.”
He also reckoned that
further operational challenges
would be derived from double
digit energy price hikes, and
with water tariffs also possibly
starting to spike. “And,
as cash flow and margins
continue to be squeezed,
short time arrangements
and retrenchments and
redundancies will all aggravate
the current lack of demand.”
On the political front,
Doig hinted that uncertainty
would prevail in 2016 as the
tri-partite alliance sought to
maintain power at all costs.
And adding to this
uncertainty is the fact
that several sectoral wage
agreements (eg, platinum and
motor industries) are up for
renewal later in the year –
and strike action may again
become prevalent.
“From a trade credit
perspective,” said Doig, “the
foregoing should lead to
greater emphasis on risk
mitigation when conducting
business in order to avert
sustaining trading losses which
could spell the difference
between outlasting 2016 or
becoming a victim to it.”