Quarterly GDP Growth of 13.5% pushes Rand below US$ 15 Threshold

GDP Growth

South Africa’s Gross Domestic Product (GDP) has shown a seasonally adjusted increase of 13.5% quarter-on-quarter Stats SA reports. This applies across all 11 industries as the re-opening of the economy after the hard lockdown due to the Coronavirus Pandemic has started to generate improved turnovers.

The 13.5% growth for the quarter was the first positive return after four negative quarters, although the year-on-year GDP growth still shows a contraction of 6.0% highlighting that even after the strong rebound a full recovery has not yet been achieved.

 

What is remarkable is that the GDP growth was achieved despite the recent credit rating downgrades by rating agencies Fitch and Moody’s.

The Rand

In April the South African Rand traded with R 19.26 at its worst ever level to the dollar but has now significantly gained against a weakening dollar as confidence returned to markets and money started to flow again into the Emerging Market economies. Its strength is being currently supported by the country’s trade surplus and portfolio inflows, positive news about Covid-19 vaccines and there is also a hunt for higher yields with ultra-low interest rates in advanced economies like the United States and Europe, which pushed the Rand last night through the USD 15.00 threshold.

Outlook

With the South African bond market currently offering some the highest real yields in the world, it is an attractive investment option.

Production in most sectors will probably continue to normalise in the final quarter, supported by stronger global demand and firmer commodity prices. However, underlying structural constraints might still weigh on output.

Consumer spending is expected to be supported by low-interest rates and subdued inflation. However, the increase will be limited by a weak job market, which depresses consumer incomes and confidence.

The outlook for private sector investment spending remains bleak due to limited progress with structural reforms and fiscal consolidation, with the private sector likely to be crowded out of the capital markets.

But countering this outlook is the Northern Hemisphere autumn, winter and spring with the second wave of the Coronavirus wreaking havoc across all countries, which means that the positive sentiment that has supported the rand cannot be relied on to continue throughout 2021.

However, additional vaccines will be released during the coming months and with an end to the Pandemic, all sectors should be able to return to full productivity levels.

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