After being told for many years about our external crisis exposure, and the G20 communiqué last week for good measure still mentioning that the global crisis condition has not yet ended, it is good to note that global financial markets are celebrating something quite different.

Things are looking up, globally, and this condition is spilling ever wider.

Institutions such as IMF and OECD have redone their tunes and may have to keep fine tuning them as global conditions are steadily evolving away from crisis and towards more balanced performance.

Rich country growth next year is punted as 2.5%, with the UK even good for 3%.

EM space has slowed, but this process may be being arrested now, with China growth even slightly upped again, and still very much in the 7% range.

Taken together, these prospects may also be stabilizing the outlook for commodities.

None of this is to mean that the large output gaps of the rich countries are near closing. Anything but.

 The US unemployment rate may have dropped to 7.3%, but this is primarily due to so many discouraged people having dropped out of the labour force. The US labour participation rate is at its lowest level in a generation. There remain millions who are very much underemployed and who in more normal times would be holding better quality, higher paying jobs.

The August non-farm payroll was typical in that it was underwhelming (+169 000 jobs created, but with -74 000 revisions for June-July, making for a +95 000 net).  Just as important, half the August tally was in low-paying jobs (restaurants, health care, temporary). Nominal wages were only +2%yy, unchanged in real terms.

There is therefore a long way to go in the US to reabsorb idled resources more fully, something that is even truer in Europe (with its depressingly high youth unemployment) and the UK.

There is a long litany of negatives that can still be mentioned.

In the US the backing up of bond rates of recent months, with the 10yr bond yield doubling from 1.5% to 3%, has weighed on the economy, preventing growth accelerating.

This phenomenon is not limited to the US, spilling wider among rich countries and also infiltrating EM space.

In Europe, ECB President Draghi last week expressed himself very cautiously about growth prospects, with some evidence of higher domestic demand and improved exports, but this as yet hardly very strong and banks yet to end their deleveraging and improving their credit flow to businesses and households.

In EM space, a large number of countries have seen their exports fall off and have had to stem their too lively credit growth. In many instances commodity producers have seen their export prices fall heavily. With capital inflows falling off, EM currencies have depreciated noticeably, boosting domestic inflation, and resulting in higher interest rates in Brazil, Turkey and Indonesia, with India resorting to tighter capital controls.

Anxiety has been rife worldwide about higher oil prices following escalation in the Syrian civil war and fear of punitive external strikes.

The real global focus has been on the US Federal Reserve. For a complex of reasons it has given notice that it would prefer to start slowing (tapering) its QE bond purchases over the next 12 months.

US growth is progressing steadily, if so far still unspectacularly, with the negative consequences of too much liquidity gradually starting to be seen to outweigh the benefits for the economy. Also, with QE policy becoming increasingly politicized, potentially unduly politicizing the Fed chairman Bernanke Succession, there seems an inclination to at least start the process of slowly unwinding the emergency liquidity measures, even if its ending will be data dependent (and importantly also dependent on the beliefs of the incoming new Fed chairman early next year).

Doing so gradually has the additional benefit of preventing undue volatility in rich country financial markets and their spillovers in exposed EM countries. The Fed wants above all to prevent negative feedback loops of undermining the growth revival taking hold, as much at home as abroad.

Despite the global market volatility ever since the Fed started this process last May, what is coming into view is a glide path that is fulfilling most of these aims.

The QE boosts came to an end the moment the Fed started talking in public about eventually tapering the pace of its bond purchases during 2013-2014, followed by rate tightening during 2015-2018, as bond yields started backing up, offering growing headwind to the US growth process. This coincided over the past month with Syrian civil war escalation and higher oil prices weighing on global recovery.

Yet despite all the anxieties expressed daily, the Syrian situation may remain contained as outsiders restrain their interference. The Fed is likely to fudge its tapering start this month (starting VERY slowly and calming anxieties, preventing an unduely rapid further backup in bond yields). And once passed the German election this month, there likely will be more progress towards achieving a European banking union (even if only an imperfect one focused on national solutions) and a bit more aid for Greece rather than seeing the European crisis flower anew.

Markets are taking note of the risk downsides but seem more intent on the upsides. Equity markets are moving higher, while bond and EM currency sell-offs may be subsiding as the pace of adjustment is gradually settling down.

How will all this play for an EM commodity producer with sophisticated financial markets like South Africa?

We may not shortly match the Spanish 8% export growth revival, or the UK or Japanese 3% GDP growth revival, but our key export markets are stabilizing and may henceforth slowly start to recover.

We in any case are ever deeper into fast growing Africa, an export market that will loom yet larger in coming years. Also, it would seem the EM growth downgrade is already ending, with Chinese growth prospects stabilizing (even slightly upped once again) and this feeding into stabilizing commodity prices.

It may not be a very rapidly improving global prospect, but it nevertheless does look like an improving one, and one leaving crisis downsides increasingly behind.

That would be an important plus in the South African outlook, especially as devastating mining strikes appear to have been averted, and higher mining output may conceivably result from 4Q2013, supporting GDP growth, if still only minimally for now.

Equally encouraging, improving external volume prospects next year and slow domestic spending may go some way in taming the excessive current account deficit of recent quarters.

If this were to come about, it could be reinforced by the lessening global tapering strains, thereby inviting a less oversold Rand condition.

This already came into view late last week, with the Rand back at 10:$ after earlier stabs towards 11:$, with conceivably more Rand backtracking possible into high single digit territory (9-10:$) as the world grows less overwrought once properly launched onto a very gradual US tapering glide path (hopefully devoid of Syrian spillovers).

Such a Rand trajectory, along with the high single digit (7%-10%) union settlements and relatively short strike actions, would assist in containing the average SA wage bill and upside inflation pressure, and encourage the SARB of keeping rates low and stable for as long as growth underperforms and the output gap lingers.

Potentially, this could keep interest rates stable at present levels through 2014, and even into 2015.

In turn, all these factors could stabilize recently backed up bond rates while boosting corporate earnings prospects, especially where Africa reinforced.

Though South African prospects have steadily been winding down these past three years (reckoned from late 2010), instead of this process still intensifying in coming quarters there is a case to be made that the tide may be turning very slowly, starting on the outside and reinforced by less dire strike actions than feared.

But now one seeks follow-through domestically, with lifting supply constraints, faster infrastructure rollout, better public sector delivery, and lifting private business and household confidence and earnings boosting the willingness to take on more risk.

Out there somewhere lurks the return to 3.5% GDP growth. And eventually possibly even better growth performances once reinforced by fundamental domestic reforms, a more balanced and better performing world economy, a much larger Africa exposure and the benefits of a major energy fracking windfall starting to flow, all of it more likely in the next decade rather than the present one, yet still steadily coming into focus.

The point is, the global tide is progressing steadily (it turned years ago) and our fortune may eventually be turning up with it if we do more ourselves to improve our game rather further impoverish it.

Cees Bruggemans
Consulting Economist FNB
Cees@fnb.co.za

Twitter sound bites @ceesbruggemans