TRAVELLING in the US or UK using SA’s rand is a depressing experience. Everything is grievously expensive, particularly in London. The causes of rand weakness are well known; chiefly, the unyielding weakness in the trade balance as exports have lagged imports over the past few years. Add in a persistent budget deficit caused by rapid government wage growth and capricious government policy, and a weaker rand was inevitable.

So, the currency’s relative stability in the past week caused some surprise. The never-ending worries about Europe, growing queasiness on China and the resumption of doubts about the strength of the US labour market pushed oil prices down to $83/barrel last Wednesday. The US 10-year bond yield traded below 2% on Wednesday and Thursday. Global equity markets sold off sharply. All these developments point to a deteriorating global growth outlook.

As investment research group Bank Credit Analyst pointed out recently: "Breakdowns in a number of global growth-and commodity-related financial market segments signify that global growth, in general, and emerging market domestic demand in particular, are relapsing."

There are several reasons for the rand’s good behaviour. First, the rand had already weakened in the preceding weeks. During September, the rand depreciated by 5,7% against the rising US dollar and 3,9% on a trade-weighted basis. Therefore, the currency is cheap.

Second, the monetary policy outlook has cleared. After bungling the departure of Reserve Bank governor Gill Marcus, President Jacob Zuma rescued the situation by appointing one of her deputies, Lesetja Kganyago, to the post. Kganyago is fiercely independent and there is little risk of populist monetary policy or haphazard banking regulation.

The outlook for the rand is dependent on the fiscal and trade balance. Government can control the former and the falling oil price will help the latter, as will improved platinum and motor industry export volumes.

Third, the fiscal news flow has improved. Finance minister Nhlanhla Nene isadamant that large public sector wage hikes are not affordable. He has been far more outspoken on this issue than many expected when he was appointed in May 2014.

Nene is due to deliver his first major policy document — the 2014 medium-term budget policy statement — this week. This will provide an important signal to financial markets, rating agencies and public sector unions about government’s commitment to maintaining macroeconomic stability.

As a result of Nene’s recent pronouncements, markets expect a budget that remains committed to fiscal consolidation. The biggest question mark is whether this commitment will remain intact if weak global growth reignites capital flows into emerging market bonds.

The outlook for the rand is dependent on the fiscal and trade balance. Government can control the former and the falling oil price will help the latter, as will improved platinum and motor industry export volumes.

Though spotty global demand and local labour problems have stunted the ability of SA miners to take advantage of the weaker rand, the tourism sector has had no such impediments. According to SA Reserve Bank data, tourism inflows are up 20% since the start of last year. In contrast, tourism payments (from South Africans travelling abroad) are up only 3%.

Unfortunately, none of this will be enough if global growth collapses. In that situation, tourism receipts will contract as they did in 2009 and platinum prices will continue to plunge.

Historically, the rand has led most variables at important turning points in global growth. It is hoped the rand’s recent stability means the softness in global economic momentum will be short-lived. JPMorgan’s global economics team pointed out last week: "Through stomach-churning swings in financial markets this week, we maintain our key near-term view: that a material upturn in global growth started in September."

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