South Africa likely to avoid recession
South Africa may have dodged a second recession in consecutive years, but the outlook for the economy remains bleak.
The annual gross domestic product (GDP) data due to be released on Tuesday (3 September), is likely to show that the country expanded in the three months through June, according to the median estimate in a Bloomberg survey.
That, Bloomberg said, is largely due to a more stable power supply following bouts of load-shedding in the first quarter that helped to cause to the biggest GDP contraction in a decade.
The data is expected to show the South African economy grew an annualized 2.5% from the first quarter.
While the slowing global expansion is contributing to the tepid growth, the nation’s economic woes are largely of its own doing, Bloomberg said.
The African National Congress-led government in South Africa has failed to decisively deal with the finances of debt-laden power utility Eskom, which is straining the nation’s budget and caused a contraction in GDP in the first quarter.
Rand
Data from Momentum Investments showed that the rand softened by 5.6% against the dollar in August, due to trade uncertainty, and ongoing growth and fiscal woes, locally. The local unit was 4.8% weaker against the euro.
And in the first few days of September, the country’s problems have been compounded by riots and xenophobic violence in its biggest cities.
According to Bianca Botes, treasury partner at Peregrine Treasury Solutions, this activity has not received too much attention from global players and has had no effect on the currency, although it is not good for local sentiment.
“The global economic slowdown, made its presence known in the EU yesterday with German manufacturing dropping once again for the eighth consecutive month, pushing the euro to 28-month lows.
“The focus is still squarely on the slowing global economy with the trade war dynamic overshadowing most other economic events,” Botes said.
Treasury Solutions said that the rand is likely to show some reaction to the local GDP figures especially following the shocking contraction in the first quarter.
On Tuesday the rand was at R15.27 to the dollar, R18.38 to the pound and R16.70 to the euro.
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