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13 April 2012 23:14

Nedbank’s Dennis Dykes the Thomson Reuters Economist of the Year: Dennis Dykes - chief economist, Nedbank

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    The assumptions built into his model that made him the best forecaster.


    ALEC HOGG: Well, the Thomson Reuters Economist of the Year award this year has gone to Nedbank’s chief economist, Dennis Dykes, who joins us now.
        Well, Dennis, it's good to have you on the programme. First of all, congratulations. Were you surprised or did you think you were a shoo-in this year?

    DENNIS DYKES: [Laughs] No, I don’t think it's the case that you think you're a shoo-in, because I think there are something like 30 participants, and the forecasts obviously are in some cases fairly close. So you can never really be at all certain about whether you are going to come in the top three or not.

    ALEC HOGG: But you must have had a good feeling. You know when you are close to the top. What were the assumptions that you built into your model a year ago that made you the best forecaster – I hope we can't call it the best guesser – on the economic front?

    DENNIS DYKES: I think what worked for us this year or during the course of 2011 was our interest-rate forecast. We very consistently took the line that interest rates weren't going to go up, and there were stages during the year when the market through, for example, the … were suggesting very strong increases. And so we held the line on that one, and it turned out to be the right assumption. So one of the sub-prizes today was forecasting the repo rate, and we won that trophy with Absa Capital.

    ALEC HOGG: Does that mean that Nedbank’s profits are going to look a little better than others, given that you’ve told them how they should have been playing their book?

    DENNIS DYKES: Well, that’s if they believe me! It certainly helps. Obviously our views go into the asset liability committee process. But the bank isn't in the business of making big bets around interest rates. It's a dangerous sort of policy. But it certainly helps you position the book over time. So, obviously if you can get the interest rates reliably correct, it really does help the planning.

    ALEC HOGG: Dennis, what about the year ahead? That’s you area of, if you like, expertise. How are you reading the next 12 months?

    DENNIS DYKES: Well, I think it remains a difficult one to read because quite often in any business cycle all you have to worry about are the normal sort of relationships that apply and how quickly they are going to apply. Demand picks up and you start to see inflation rising, and then interest rates start kicking in. This time round we've been in a very abnormal global situation obviously post the 2008 global financial crisis, which is still having an impact, and I think will continue to impact for quite a while. And it's working through the credit markets obviously, which remain impaired across the globe. But it's also been manifested in obviously very much deteriorated fiscal positions. And that’s meant that policy has been largely ineffective and growth rates in most of the developed world look very, very anaemic. So it's quite tricky, but I think that plain sort of stop-start sort of feeling that we had last year will continue this year, and we are only predicting about 3.7% growth for the year ahead.
        There are also some domestic factors – obviously, the electricity constraint which I think has held up a lot of fixed investments that might otherwise have taken place. A similar set of constraints are not quite as tight on the rail and port side. And then a bit of policy uncertainty ahead of the ANC elective conference later this year, and clearly there are lots of debates going on. That also leads to some uncertainty that we see in some of our clients.

    ALEC HOGG: What that means is, if you believe the guy who’s best at predicting interest rates, you don’t have to worry about having further bond increases.

    WAYNE McCURRIE: Not this year. Interest rates are going up next year.

    ALEC HOGG: That’s cool. At least we’ll take nine months of no rate increases – those who’ve got bonds.

    WAYNE McCURRIE: The next move is up.

    ALEC HOGG: Not like Mr McCurrie of course – he paid his bond off years ago.

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