Rand drops 1% after GDP shock

The rand tumbled more than one percent on Tuesday after data showed the economy contracted sharply in the second quarter due to coronavirus restrictions, rattling already fragile investor sentiment and upping expectations of reforms.

At 1430 GMT, the rand was down 1.3% at R16.97 per dollar, most of the losses coming after statistics showed Africa’s most advanced economy shrank 51% in the second quarter, its fourth consecutive quarterly contraction.

“The GDP print might be a good incentive for the South African authorities to continue to push on with the well-needed reforms,” said Vladimir Demishev, a senior fixed income specialist at Sova Capital.

The economic slowdown was broad-based. Mining declined 73.1%, manufacturing fell 74.9% and construction shrank 76.6%.

“Of far greater concern is the fact that South Africa was already battling a recession before the pandemic hit, meaning that the virus may finally have tipped the economy over the edge into a depression,” said Maarten Ackerman, chief economist at Citadel.

It was the first time in the history of the data that growth had shrunk for four consecutive quarters, according to the stats agency.

Bonds also suffered, with the demand falling at the government auction of long-dated bonds earlier. At 1430 GMT the yield on the 2030 bond was up 5 baiss points to 9.265%.

Stocks were flat, with the benchmark FTSE/JSE all share index was up 0.1% to 54,450 points, while the top 40 companies index inched up 0.08% to 50,223 points at close of trading hours.

Supermarket chain Shoprite was among the big climbers on the day, with its share price up 10.6% to R128.72 after it reported record sales of R156.9 billion up 6.4% for the year ended June 28, with like-for-like sales up 4.4%.

Source: moneyweb.co.za