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Ramaphosa lead, surprise GDP data boost rand

Dec 05 2017 22:45
Yolandi Groenewald and Bloomberg

Johannesburg - The rand rallied on Tuesday on better than expected GDP figures, but mostly because Deputy President Cyril Ramaphosa has taken the lead in the race for leadership of the ruling party at the ANC's elective conference later this month.

South Africa’s economy grew by 2% in the third quarter of 2017. The statistics exceeded expectations and could push South Africa's growth to 1%, in contrast to earlier more dooming figures. 

The latest quarter's GDP figures bring growth for the past year to 0.8% and year to date to 1% - which is already higher than the current consensus number for 2017, including recent numbers published by the South African Reserve Bank and the National Treasury.

"The general expectation was for GDP growth to come in at 1.7%, so 2% growth is a welcome surprise for the struggling South African economy," said Bianca Botes, Corporate Treasury Management of Peregrine Treasury Solutions.

She said the stronger rand is currently also a function of our trading account surplus, stronger economic growth and positive expectations toward the ANC elective conference.

The rand at one stage strengthened to R13.45, but slipped back slightly to R13.50 later in the afternoon.

By 21:49 the local unit was changing hands at R13.47/$ in overnight trade in New York.

Bloomberg reported earlier on Tuesday that the rand, the world’s most volatile currency, barely budged despite South Africa receiving good news in triplicate.

In the space of seven minutes, traders had to digest data showing the economy grew a better-than-forecast 2% quarter-on-quarter between July and September, an almost 10% jump in the trade surplus in the period to R71bn and a R3.3bn domestic bond auction at which investors bid for more than double the amount of debt offered.

But the rand was relatively unfazed, trading just 0.1% stronger at R13.5049/$ by 15:27 in Johannesburg.

It’s a sign that investors don’t care so much for economics right now as they do for politics, focusing more on the conference from December 16 - 20.

Deputy President Cyril Ramaphosa, seen as the candidate favoured by investors, has built a lead over his main rival, Nkosazana Dlamini-Zuma, helping the rand rebound since it hit this year’s low on November 13 by more than 7%. That’s the best performance in emerging markets during the period.

“The currency and South African government bonds have been on a good run over the last week on easing political risk, and this remains the key driver,” Christopher Shiells, an analyst at Informa Global Markets in London told Bloomberg.

Back to GDP, the short term green shoots were definitely welcomed in a year that saw South Africa enter and exit a technical recession. 

Maarten Ackerman, Chief Economist at Citadel said the 2.6% increase in household expenditure suggest that consumers are not on their knees as suggested by the very low consumer confidence.

He added that the numbers released on Tuesday, coupled with recent currency movements and expected inflation over the next twelve months, suggest that the South African Reserve Bank is probably done with cutting interest rates for now.

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stats sa  |  sa economy  |  gdp growth  |  gdp

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