Cape Town - South Africa’s rand weakened to a five-year low against the dollar after a manufacturing gauge declined, adding to evidence a recovery in the continent’s biggest economy is struggling to gain traction.
The Kagiso Manufacturing Purchasing Managers’ Index fell to 49.9 in December, the lowest since April, from 52.4 the previous month.
The median forecast in a Bloomberg survey of economists was 52.5.
A number below 50 indicates a contraction in the manufacturing industry.
“Any contraction in the PMI is obviously a concern, because it reflects the real underlying fundamentals of this economy,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd., said by phone from Johannesburg.
“The rand is certainly reacting to that. It looks as though the rand is intent on breaching that 11 mark,” he said.
The last time the rand breached 11 per dollar was during the US financial crisis in 2008.
The currency dropped as much as 0.9 percent to 10.9328 per dollar, the weakest level since October 2008, before paring its decline after a report showed retail sales accelerated in November.
It traded 0.6 percent lower at 10.8935 by 4:46 p.m. in Johannesburg.
Yields on benchmark rand bonds due December 2026 climbed eight basis points, or 0.08 percentage point, to 8.34 percent.
Retail sales growth quickened 4.2 percent in November from a revised 1.4 percent the previous month, more than the 0.9 percent median estimate of 11 economists in a Bloomberg survey, a report showed today.
Retail sales probably won’t be sustained as consumers remain under pressure from high debt and inflation, said Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities in Johannesburg.
“While the stronger-than-expected growth in real retail trade sales in November is encouraging, we warn that this is unlikely to have sustained into year end,” Schultz said in an e-mail.
“Slowing household credit extension, depressed consumer confidence, high consumer debt levels and a still elevated domestic inflation environment continue to weigh on consumers’ ability and willingness to spend aggressively.”
Mining output slipped to 5.1 percent in the same month from growth of 23 percent in October, data showed yesterday.
Foreign investors were net buyers of South African debt for a second day yesterday, purchasing 398 million rand ($37 million) of securities, according to JSE Ltd. data.
Foreigners purchased a net 1.35 billion rand of equities, the data show. - Bloomberg News