The rand took another knock yesterday, crumbling to R9.2689 just after 4pm, a level last seen in March 2009 and down more than 9 percent in the year. At 5pm, the currency was bid at R9.2488 to the dollar.
Clint Fenton, the head of spot rand trade at Investec, said the trigger for yesterday’s slide was poor retail sales data.
Statistics SA (Stats SA) reported retail sales growth was only 1.9 percent year on year in January once inflation was stripped out, down from December’s revised 2.2 percent.
With export revenues falling, the economy has relied heavily on consumer spending to power growth in gross domestic product (GDP).
The latest retail figures confirm that the declining trend in household spending, seen last year, is continuing this year.
Investec chief economist Annabel Bishop said the January figure was “significantly worse” than the Bloomberg consensus of 3.6 percent and the poorest growth outcome since January 2010’s 0.4 percent “which was the first reading directly after the 2009 recession”.
Stanlib chief economist Kevin Lings said retail sales recorded a quarterly decline of 0.7 percent in the three months from November to January. He noted this would dampen GDP growth estimates for this year.
Credit rating agencies will pay attention. In last month’s Budget, Finance Minister Pravin Gordhan based his revenue projections on GDP growth of 2.5 percent. Anything less than that implies a revenue shortfall which, in turn, means a wider gap between government revenue and spending in the 2013/14 fiscal year.
In 2012/13, a R16.3 billion revenue shortfall pushed the budget deficit from an estimated 4.8 percent of GDP to 5.2 percent.
Moody’s, Standard & Poor’s and Fitch have already cut the country’s sovereign debt rating. Expectations that the deficit in the coming fiscal year will also be revised upwards may prompt further action.
Lower ratings mean higher interest costs, a bill met by the taxpayers.
The latest bout of currency weakness started on Tuesday with news from the Reserve Bank that the current account deficit was wider than expected along with negative revisions to historical data. The gap between income from exports of goods and services and the import bill widened last year to 6.3 percent of GDP.
The rand’s two-day fall reflects the market’s fears that large and widening deficits on both the current account and the Budget will undermine economic growth and cause social instability.
Fenton said the rand’s fall yesterday accelerated as the currency passed through stop-loss territory between R9.18 and R9.22. Stop-loss orders limit investor losses.
News from abroad contributed to the drop.
Bloomberg reported: “Euro area industrial output fell more than economists forecast in January, adding to signs that the region’s recession extended into the first quarter.”
South African exports to the euro zone have already contracted and continued recession in the region will see that trend continue.
A raft of domestic data due today will shed more light on the state of the economy.
On the supply side, StatsSA will release mining and manufacturing output figures. On the demand side, it will publish wholesale and motor sales numbers.