Lesetja Kganyago.
JOHANNESBURG - The rand gained ground against the dollar on Friday, as the greenback slid on trade woes and as local sentiment was boosted after China pledged to invest billions in South Africa and SA Reserve Bank (Sarb) governor Lesetja Kganyago signalled that the country would narrowly escape a recession. 

The dollar slipped against a basket of currencies after the US government reported gross domestic product grew at a 4.1 percent annualised pace in the second quarter, which failed to erase worries that trade frictions would be a drag in the second half of this year, according to Reuters. By 5pm on Friday the rand had gained nearly 6c to the dollar to R13.16. Chinese President Xi Jinping last week promised $14.7 billion (R193.16bn) of investment in South Africa, a much-needed boost to the economy

Kganyago, speaking at the Sarb’s annual general meeting on Friday, said: “At this stage, the high-frequency data for the second quarter indicate that a modest improvement is likely in the quarter, and the South African Reserve Bank does not expect a second consecutive quarter of contraction.” South Africa experienced an upside surprise growth rate of 3.1 percent in the final quarter of 2017, the economy contracted by 2.2 percent in the first quarter of this year. Kganyago said growth of 1.9 percent was expected in 2019, while the forecast for 2020 remained unchanged at 2 percent.  “At these growth levels, we cannot expect to make appreciable inroads into the unemployment problem of the country.” Tomorrow Statistics SA’s Labour Force Survey for the second quarter will show whether “Ramaphoria” has resulted in increased job creation.

Kganyago said inflation was still expected to remain within the target range of 3 to 6 percent for the forecast period, but at higher average levels than previously thought. He warned that there was a limit to what monetary policy could do to stimulate growth

Contraction 

Annabel Bishop , the chief economist at Investec, said South Africa’s industrial production figures to date showed a 6.2 percent quarter on quarter seasonally adjusted annualised contraction for the first two months of the second quarter of 2018 plus March 2018 as the June figures were not yet out. She said: “The risk is that this trend continues for the last month of the second quarter of 2018, contributing to another negative quarter, and risking recession.

Lower sovereign credit ratings would both increase SA’s cost of borrowing   and lower its ease of borrowing, in an environment where the country is already battling fiscal consolidation, particularly given recent higher than budgeted for civil service wage settlements, rising government debt/GDP and now even considerations of reversing the VAT increase,” she said Tsitsi Hatendi-Matika, the head of retail investment specialist, wealth and investment management at Absa, said on Friday that while Sarb believed that the repo rate at 6.5 percent was accommodative, market commentators and economists differed on this view. “On the one hand there is the argument that at 6.5 percent monetary policy has done its part, and fiscal policy needs to do the rest. On the other hand, there is the argument that it can go lower. 

“Unfortunately, given that the inflationary pressures appear to be supply-side pressures, lower rates would not move the dial significantly.”

- BUSINESS REPORT