Share

South Africa’s Economy Contracts Unexpectedly in Second Quarter

Those are just two of the thousands of barbs according to Twitter posts trending under the hashtag #StrongerThanTheRand, directed at South Africa’s currency, which plunged to a record low against the dollar on Monday.

Advertisement

South Africa’s central bank issued a statement saying it would consider intervening in the foreign exchange market “to ensure orderly market conditions”.

The FTSE/JSE Africa All Share Index jumped 1.2 percent to 48,193.93 by 10.10am in Johannesburg on Tuesday, with 105 stocks gaining, 49 falling and 13 unchanged. The RSI climbed to 81 on Monday, the highest since May 2013 and above the 70 level that some traders see as a sign the currency has depreciated too much, too fast. “My experience is when you get price action like this, it’s normally at the beginning of something, not the end of something”.

Stats SA says the rate of economic growth in the country means that the target of 5% growth set by the National Development Plan is becoming less likely. “I think that September is on the table and if anything they will move again because of the currency”.

The quarter-on-quarter decrease in overall economic activity was characterised by five of the ten main industry groups shrinking in size, while the other five experienced some growth.

Advertisement

“It’s a vicious cycle for commodity-related currencies like the rand as weak commodity prices would feed into weak jobs market, weighing on the economy”, said Tarsicio Tong, a currency trader at Union Bank of Taiwan in Taipei.

South Africa rand hits all-time low