South African rand weakens as economy enters recession

A slowdown in the agriculture sector was a main driver for the overall economic decline

South Africa has gone into recession after its economy shrank by 0.8 per cent in the second quarter of the year.

A recession is technically defined as when an economy contracts over two consecutive quarters.

The main reasons behind the contraction in the second quarter were slowing agriculture, transport and trade sectors, according to Statistics South Africa. In particular, the agriculture market fell back by 29.2 per cent, taking 0.8 per cent off GDP.

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

“The economy remains lacklustre, partially driven by policy uncertainty. Investment in manufacturing and development has been hampered by uncertainty regarding the mining charter and land redistribution,” said Bianca Botes, an analyst at Peregrine Solutions.

Jeffrey Schultz, senior economist at BNP Paribas, added: “There is no way to sugar-coat the numbers, the growth picture in the first half of 2018 is ugly and it shows in this economy that there is broad-based weakness across the primary and tertiary sectors of the economy.”

Meanwhile, George Glynos, head of research at ETM Analytics, said the recession was a result of years of poor administration, and added: “Clearly this is not what (President) Ramaphosa would like running into the elections next year.”

The rand was down 1.5 per cent against the dollar on Wednesday, with $1 buying 15.6 rand, and the South African currency was also down 1.2 per cent against sterling, with £1 buying almost 20 rand.

The weakened rand pulled South African stocks down on Tuesday.

“(There is) a lot of pressure on banks and retailers, as expected with such a weak rand. The emerging market sell-off continuing and the dollar going on a bit of a rampage are also having an effect on our market,” said Vasili Girasis, market trader at BP Bernstein.

Additional reporting by newswires