Rand plummets as economy falls into technical recession

Stats SA says the largest negative contributors to growth in GDP in the second quarter were agriculture, transport and trade. 

The rand slipped to R15.12 against the dollar after breaking through R15 to the dollar on Tuesday morning, following news that the South African economy had slipped into a technical recession.

Statistics South Africa said that the economy contracted by 0.7% in the second quarter of the year, following a revised 2.6% shrinkage in the first quarter, therefore slipping into a technical recession. StatsSA said the largest negative contributors to growth in GDP in the second quarter were agriculture, transport and trade.

The agriculture, forestry and fishing industry decreased by 29.2% and contributed a negative 0.8 percentage points to the change in gross domestic product, mainly because of a drop in the production of field crops and horticultural products.

Transport, storage and communication fell 4.9%, taking away 0.4 percentage points while trade, catering, and accommodation were down 1.9% and contributed -0.3% points.

Bianca Botes, corporate treasury manager at Peregrine Treasury Solutions, said that the figure speaks to the lack of economic activity, partially driven by policy uncertainty.

“Structural issues remain prevalent, while investment in manufacturing and development has been hampered by uncertainty regarding the mining charter, independence of the SA Reserve Bank and land redistribution,” Botes said.

“The economy remains lacklustre, and the rand is struggling to gain any meaningful momentum towards stronger levels as the emerging market crisis and subdued local performance weighs heavily on sentiment.”

The main positive contributions came from the mining industry and finance, real estate and business services, Stats SA said.

Mining and quarrying industry increased by 4.9% and contributed a positive 0.4 percentage points to GDP. Increased production was reported for mining of metal ores including platinum group metals, copper and nickel.

Household final consumption expenditure decreased by 1.3% in the second quarter of 2018, contributing a negative 0.8 percentage point to total growth. This was the first quarter-on-quarter decrease since the first quarter of 2016.

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