The rand, which hit a three-and-a-half-year low earlier this week, could strengthen over the short term, depending on how South Africa dealt with the current labour unrest, Absa Asset Management GM Craig Pheiffer said Thursday.

The ongoing strikes over higher wages in the mining and transport sectors saw the rand hitting R8.97/dollar on Monday.

But, in the longer term, Pheiffer expects a depreciating trend to continue and said the South African economy’s many challenges, including labour strikes and credit agency Moody’s recent downgrading of the country's government bond rating, contributed to a more negative outlook.

“Our economy needs a fiscal policy, but we do not have the ammunition to do this. Taxpayers cannot be burdened further,” Pheiffer noted.

He added that although the global economy had shown some improvement, recovery had been waning, with interest rates set to remain lower for longer.

Absa investment analyst Christopher Gilmour noted that interest rates were in a “race to the bottom”. “In 2009, conventional wisdom saw US interest rates rising and those in the rest of the world following suit. But the reverse has happened,” he said.

Gilmour pointed out that local retail stocks were boosted by lower interest rates, and would benefit further, if interest rates continued to fall. However, a sustained weaker rand could negatively impact on retail stocks.

While the UK, Japan and US would be out of economic recession by the end of the year, Europe would not. Pheiffer said all the developed economies were forecast to be out of recession by 2013, although not too comfortably.

The Brazil, Russia, India, China and South Africa (Brics) group of countries’ gross domestic product (GDP) was expected to grow between 2012 and 2013, albeit slower than in previous years.

The South African Reserve Bank revised its 2012 growth forecast for South Africa’s GDP downwards from 2.9% in May to 2.6% in October, while it is forecasting economic growth of 3.4% for 2013.

Contributors to weaker GDP growth were retail sales (consumer spending), which showed a year-on-year decline of 4.2% between 2011 and 2012, manufacturing, which fell by 5.8% year-on-year, as well as a 6.7% year-on-year fall in mining production, brought on mainly by strike action.