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The SA Daily 24 March 2020

Volatility high, rand weak on health crisis

Shireen Darmalingam

  • Last night, SA President Cyril Ramaphosa announced further restrictions to mitigate the economic impact of the COVID-19 health crisis by announcing a countrywide lockdown from midnight 26 March to midnight 16 April. The International Labour Organisation (ILO) previously noted that the strain on income due to ever more subdued economic activity amid the COVID-19 pandemic will have devastating consequences for workers at the poverty line. President Ramaphosa said last night that government would support those whose livelihoods will be affected and that government would use reserves within the UIF system to assist workers in SMEs should the need arise.
  • The pandemic has in just three months since the first death was reported in China thrust the world economy into recession conditions. Fears about rising joblessness will pick up in the coming weeks. The rand has reacted to world recession fears by losing 6.1% since last week. We expect volatility to remain high and the rand to remain under pressure. We see the rand weaker, at $16.00/$ by year-end.
  • Still, volatility had eased by Friday last week — but this week markets kicked off on a jittery note as talks, of a $2 trillion rescue package to combat the economic impact of the coronavirus pandemic in the US, collapsed. The VIX volatility index has rocketed to 61.6 pts, from 12.5 pts in January, and is close to global financial crisis (GFC) levels. Volatility could rise even further as markets assess the likely economic impact of the outbreak. Already, job losses across the globe are imminent; the ILO forecasts a global loss of 25 million jobs due to COVID-19, adding that there could be as many as 35 million more people in poverty around the world than before this global health crisis.

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