The rand see-sawed backwards heavily this week after Statistics South Africa revealed the country is in a technical recession for the second time in eight years as gross domestic product (GDP) contracted 0.7% for the first quarter of 2017. Technical Recession is hereby defined as two consecutive quarters of GDP contraction. Well, South Africa has now joined Nigeria, who are already in recession since the previous quarter.
The Madiba-clad currency erased gains made in a strong morning against the dollar, which saw the rand strengthen by 1% at 04:20 to trade at R12.69 to the dollar. By 12:25, it had reversed these gains, dropping 1.4% to trade at R12.89/US$.
Yields on rand-denominated government bonds due December 2026 rose 6 basis points to 8.49%, the first increase in five days. The six-member banks index extended declines after the release, dropping 1.7% in Johannesburg.
The contraction follows the GDP decline of 0.3% in the fourth quarter of 2016. Treasury said the GDP figures came in far lower than their expected 0.7% expansion. The median of 19 economists’ estimates in a Bloomberg survey was for 1% expansion. One economist forecast the contraction.
There is now a risk that these contractions are not over and we could see another negative coming out in the second quarter of this year, and experts expect a further contraction of 0.2% this year, which would imply that the economy was formally in a recession over the turn of the year.
The data released is yet another clear sign, which confirms how much the economy is being struggling under the inept leadership, which continues to send the wrong signals.