The rand strengthened yesterday, dipping below the R15-mark against the dollar following reports that South Africa's economy was bigger than previously estimated. Photo: AP Photo/Denis Farrell
The rand strengthened yesterday, dipping below the R15-mark against the dollar following reports that South Africa's economy was bigger than previously estimated. Photo: AP Photo/Denis Farrell

Rand strengthens after data shows the economy is bigger than thought

By Siphelele Dludla Time of article published Aug 26, 2021

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THE rand strengthened yesterday, dipping below the R15-mark against the dollar following reports that South Africa's economy was bigger than previously estimated.

Statistics South Africa (StatsSA) yesterday said the economy was actually 11 percent larger in 2020 than previously estimated.

StatsSA's upward revision followed its normal five yearly rebasing and benchmarking exercise.

The stats agency said the revised estimate of gross domestic product (GDP) in 2020 was R5.521 trillion, an increase of 11 percent, compared with the previous estimate of R4.973trln.

The rand flexed its muscles against all G10 currencies after having retreated to a near 6-month low last week after a risk-off sentiment in global markets on Delta variant concerns.

FXTM's Lukman Otunuga said while this news was certainly a welcome development for Africa's most industrialised economy, South Africa still lagged behind Nigeria which was was the largest in the continent.

“Nevertheless, this development has injected rand bulls with renewed confidence, pulling the rand back below R15,” Otunuga said.

“Should the rand continue to strengthen, this may send the currency pair towards R14.80.”

In spite of the upward revision, South Africa's economy remained the third-biggest African economy behind the powerhouses of Egypt and Nigeria, though it inched above Colombia on the world stage.

According to the World Bank's estimates, Egypt's GDP in terms of purchasing power parity was $1.290trln, higher than that of Nigeria $1.069trln, and South Africa $717bn.

During this rebasing process, StatsSA included new sources of information, improved the compilation methodology, reviewed and refined the classification of economic activities, and updated the reference year from 2010 to 2015. The improvements in methodology and classification resulted in economic activity being more accurately linked to the industry where the activity takes place.

“Differences between previous and revised levels are a typical outcome of rebasing and benchmarking exercises,” StatsSA said.

“When Nigeria overhauled its GDP in 2014, it discovered that its economy was about 60 percent to 90 percent larger than previous estimates ... and closer to home, Botswana revised the size of its economy down by 10 percent.”

StatsSA also revised the annual GDP growth rate for 2020 from -7.0 percent to -6.4 percent, saying the economy did not contract as badly as had been thought.

Investec chief economist Annabel Bishop said increasing the size of the economy reduced future government's debt and deficit ratios, pushing up their 2021 growth outlook from 3.9 percent to 4.2 percent.

Bishop said the new GDP figures lower the government's gross debt to 71.1 percent for 2020/21 from the previous 80.3 percent of GDP.

She said it also lowered the 2021/22 estimates to a gross debt ratio of 73.5 percent from the previous forecast of 81.9 percent of GDP.

“In addition, the GDP revisions also serve to lower the budget deficit ratio to -12.4 percent of GDP from 14 percent for 2020/21, and to -8.4 percent of GDP from -9.3 percent in the February estimate, but again assuming no additional expenditure,” Bishop said.

“This will be pleasing to the rating agencies, but still shows rising debt as opposed to stabilisation, and also assumes no additional borrowing.”

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