Pros and cons for SA:
THE Greek election on Sunday is too close to call, which only heightens anxiety in global markets over the long-term prospects for the euro as a currency and what a Greek exit would mean for global economic recovery.
For the South African economy, which still has Europe as its biggest trade partner, the risks are sizable. Commodity prices and the rand have both weakened considerably over the past month as fears grow that a Greek exit could cause bigger nations such as Italy to also consider leaving the 13year-old monetary union. European economies are struggling under severe austerity pressures, putting the very future of the euro as a currency in jeopardy.
Greece’s exit looks increasingly likely, Thanos Papasavvas, fixed income and currencies strategist at Investec Asset Management, said in a note yesterday. “Greece will most likely vote against austerity measures or fail to form a credible government with a mandate to press ahead with the restructuring.”
The elections, the second in as many months after the failure to form a government last month, pit the conservative and pro-bail-out party, Nea Dimokratia, against the ultraleft Syriza party. Whichever gets a majority would win an additional 50-seat bonus and can form a majority coalition.
Europe is likely to reward a responsible Greek government with some concessions, but a vote for the radical left could prompt a hard-line approach.
South African manufacturers and exporters face a number of scenarios. “It’s a very complex question,” said Stewart Jennings, chairman of the Manufacturing Circle and CEO of PG Glass.
“One of our core building blocks is we need a more competitive country, and (Greece leaving the euro) would weaken the euro and be beneficial to us.”
The rand has weakened close to 9% against the dollar since the beginning of last month as investors looking to safeguard their wealth have turned to the relative safety of US Treasuries.
While a weaker euro may prove beneficial for the short-term competitiveness of SA’s manufacturers, Mr Jennings said they had seen a drop-off in orders from the region as slow growth started to feed into the sector.
SA’s economic recovery has lost momentum, with manufacturing nearly stalling in the three months to April, while mining has contracted for 10 months. In a recent survey, several CEOs have singled out Europe as the main factor affecting operations.
Base metals have come under significant downward pressure in recent weeks on global growth concerns. Gold, however, has seen somewhat of a rebound, up more than 5% in the past month as the metal looks to reclaim its safehaven status.
“You’re likely to see gold playing more of a safe-haven role for some time to come,” Stewart Bailey, senior vice-president for investor relations at AngloGold Ashanti, said.
“Gold is a real store of value and one of the only bolt holes for investors given the epic sovereign debt and solvency issues that quite clearly are here for some time to come.” With Mark Allix