Rand takes a serious knock after deeply disappointing GDP figures
CAPE TOWN – The consecutive dip in the real gross domestic product (GDP) during the fourth quarter of 2019, which sent the economy into a technical recession, was deeply disappointing, Steel and Engineering Industries Federation (SEIFSA) chief economist Michael Ade said.
A technical recession is when there are two successive quarters of economic decline. This is the second such recession in two years, after experiencing the one in 2018.
Data released by Statistics South Africa (Stats SA) indicated that the real GDP, as measured by production, further decelerated by 1.4 percent in the fourth quarter of 2019, from a seasonally-adjusted and revised decrease of 0.8 percent in the third quarter of 2019.
Ade said worryingly, the broader manufacturing sector, the construction and the agriculture sectors were among the negative contributors to GDP growth in the fourth quarter, all contributing -0.2 of a percentage point to GDP growth. The only silver lining from industrial production was provided by the mining sector, which contributed 0.1 percent.
Ade said the decrease in the data is discouraging, especially given the need for an improvement in business activity for businesses to thrive. “The data officially catapults South Africa into a technical recession and compounds the challenges faced by local businesses in a tough operating environment,” he said.
The rand to a serious knock versus the dollar after data showed that the economy slumped into a second recession as power cuts weighed on output and business confidence dropped.
Rand drops as much as 1.4 percent to R15.60 a dollar by 11:30am in Johannesburg, according to Bloomberg data. The yield on rand-denominated government bonds due December 2026 falls 9 basis points to 8.06 percent and the generic 10-year yield down 4 basis points to 9.12 percent.
Bianca Botes, treasury partner at Peregrine Treasury Solutions said while a contraction was largely expected, the decline exceeded market expectations, demonstrating how extensively the electricity crises in South Africa continued to plague the economic prospects of the country.