The rand is on a run - here's where it could be heading towards the end of 2021 Global uncertainty has increased over the past two months, unsettled by Covid-19 mutations and new lockdown restrictions, which is likely to impact the rand and other emerging market currencies, says Nedbank. The frequent restrictions on economic activity in many parts of the world continue to aggravate supply shortages and transport bottlenecks, keeping prices of raw materials and intermediate goods elevated, the bank said in a research note this week. "While temporary distortions, mainly pandemic-related disruptions, appear to cause global inflation, the US will start to normalise monetary policy over the next 12 months. This event will affect capital flows to the emerging market economies, but the impact could be less severe if commodity prices remain relatively firm and the global recovery continues.

Given these counterbalancing forces, we have revised our rand forecasts to reflect a more resilient picture over the near term. We still expect a mild depreciation during the rest of this year, followed by more significant weakness in 2022." The bank forecasts that the local unit will likely trade weaker towards the R14.83/dollar mark towards the end of 2021, increasing to the R15/dollar mark by mid-2022. Similar weakening is expected against the pound and euro, however not to the same extent as the greenback. The below table shows the fully monthly exchange rate forecasts for the coming months

by Nedbank's group economic unit. The South African rand traded around R14.15 against the dollar, hovering at its strongest level since early July, as the greenback remained subdued, financial services firm Citadel noted. "The risk rally continues to bolster the performance of the local currency, as markets continue to position themselves for a Dovish Fed for longer than expected," it said. At 12h30 on Friday (10 September), the rand was trading at the following levels again the major currencies: Dollar/Rand: R14.11 (-0.35%) Pound/Rand: R19.57 (0.40%) Euro/Rand: R16.70 (-0.23%) Economic recovery In a separate research note, Nedbank said that it expects local economic recovery, even if the country is to see a fourth wave of Covid-19 infections and further lockdown restrictions at the end of 2021. This comes after the economy fared better than expected in the first half of the year, expanding by 7.5% year-on-year. "We still expect a weaker performance in the third quarter, reflecting the impact of stricter lockdown and the destructive riots in Kwazulu-Natal and parts of Gauteng. "The monthly statistics reflect sharp declines in July, but new vehicle sales and the purchasing managers' indices point to a convincing return to growth in August, which is likely to gather pace in September. The recovery should broaden over the final quarter even if the country were to experience another wave of new cases and tighter restrictions." Much of the momentum will continue to come from exports and consumer spending, Nedbank said. It added that the ongoing global recovery, coupled with elevated

commodity prices, will continue to underpin exports. At the same time, subdued inflation, low-interest rates and moderate-income growth will support consumer spending. The turnaround in fixed investment is encouraging, supporting anecdotal reports pointing to an increased workflow for construction companies. However, the pace of recovery in fixed investment off these low levels will be slow, continually undermined by ample spare capacity, weak confidence, electricity shortages and structural constraints, it said. "Given the government's stretched finances, spending is likely to remain relatively stagnant. Within the context of the revisions and the stronger first half, GDP growth of over 5% now seems plausible for 2021." The South African economy advanced by 19.3% year-on-year in the second quarter, after a downwardly revised 2.6 % decline in the previous period, comfortably beating market expectations of 17.5%, Citadel pointed out. "It was the strongest expansion on record, coming off a low base from last year, and further assisted by the relaxation of lockdown restrictions amid the Covid-19 pandemic." (Source: https://businesstech.co.za/news/banking/520234/the-rand-is-on-a-run-heres-where-it-could-be-heading-towards-the-end-of-2021/)

QUESTIONS:

3.2 Taking the article into consideration, explain the expected performance of the South African economy according to some of the key macroeconomic variables. (some of the indicators are unemployment, inflation and GDP - Based on the article what changes are expected for the economy in terms of key economic indicators)

#please reference