What a start to the year! The oil price continued to plunge. So did the Russian Rouble with that country’s sovereign debt reduced to junk status. The Swiss unpegged their Franc from the Euro and Greece elected a new anti-austerity government with the hope that its mountainous debt problem can somehow be alleviated.
The prospect of deflation is now a very real prospect in Europe and elsewhere and the ECB has embarked on its own programme of quantitative easing to the tune of 60 billion euros a month for the next two years. All this to encourage both growth and inflation by pumping liquidity into the system. Not everyone is convinced this will work.
Incredibly, inflation, a consistent bugbear in world economies over many decades, is now actually being encouraged. Interest rate increases, particularly in the US, which would have a considerable effect on markets, appear to have been put on hold for now.
Emerging markets, our own included, were initially buoyed by the ECB’s decision. The Rand strengthened as did the JSE.
Meanwhile China continues to slow and we are left ostensibly with the equivalent of a global aircraft trying to fly along with only one engine functioning properly – the United States.
Here in SA whilst welcoming the lower oil price which might give a boost to the economy of 1% GDP, we continue to grapple with an inconsistent power grid. Load shedding, we are told, is likely to be with us for some years. Hopefully Eskom can manage this well enough to avoid a national black out.
The economic effects of all this have yet to be calculated and might well offset the benefits of the lower oil price. Indeed most commentators believe that the oil price will recover somewhat sooner rather than later to around $70 – $80 per barrel. Probably once a lot of the new projects have been removed from the scene.