- As private-sector activity at a standstill in May – PMI
- As rand edges lower ahead of growth numbers
PRETORIA – South Africa’s economy contracted more than expected in the first quarter led by a slowdown in agriculture and mining, sending the rand lower as investors were given a reminder of the fragility of last year’s economic rebound.
Farm workers harvest cabbages at a farm in Eikenhof, near Johannesburg, South Africa, May 21, 2018. REUTERS/Siphiwe Sibeko
Gross domestic product (GDP) contracted by 2.2 percent in the first three months of 2018 after expanding by 3.1 percent in the final quarter of last year, Statistics South Africa said on Tuesday.
This was the largest quarter-on-quarter decline since the first quarter of 2009, when the economy contracted 6.1 percent, the agency said.
The rand weakened nearly one percent.
South Africa’s economy has barely grown in the past decade with fiscal missteps and corruption contributing to weak business and consumer confidence.
Investor sentiment picked up after new President Cyril Ramaphosa pledged to clean up poor governance that set in under former President Jacob Zuma, who was forced out by the ruling party in February.
Economists polled by Reuters had expected a quarter-on-quarter GDP contraction of 0.5 percent.
The agriculture sector shrank 24.2 percent in the quarter due to poor horticulture output, followed by mining which fell 9.9 percent and manufacturing was down 6.4 percent.
GDP rose 0.8 percent on an unadjusted year-on-year basis in the first quarter, compared with a 1.5 percent expansion in the previous three months, the agency said.
Meanwhile South African private-sector activity was at a standstill in May, with an increase in new orders and rising employment offset by a contraction in output, a survey showed on Tuesday.
The Standard Bank Purchasing Managers’ Index (PMI), compiled by Markit, slipped to 50.0 in May from 50.4 in April.
The reading was the lowest since January, and right on the 50-point mark separating expansion from contraction.
“… The PMI has been gradually moderating each month, indicating a modest slowdown in the rate at which business conditions have been improving,” said Thanda Sithole and economist at Standard Bank.
“This will likely be reflected in the 1Q18 GDP numbers which will be released later today and which we expect a 0.4 percent quarter-on-quarter contraction,” Sithole said.
Business activity contracted for the second month in a row, albeit at slower pace than in April. Survey respondents cited product shortages and weaker market conditions. New orders, stock levels and employment were up modestly in the month.
Statistics South Africa publishes first-quarter economic growth figures at 0930 GMT.
Africa’s most industrialised economy grew 3.1 percent in the final quarter of 2017, but has since seen slowdowns in mining and manufacturing chip away at last year’s boom in agriculture.
– Detailed PMI data are only available under licence from IHS Markit and customers need to apply for a licence.
Also rand traded slightly weaker early on Tuesday ahead of manufacturing and economic growth figures poised to reveal if last year’s recovery has been sustained.
At 0640 GMT the rand was 0.14 percent weaker at 12.5825 per dollar, dipping in overnight trade after a rally on Monday that lifted the currency as high as 12.5200, a short-term technical level that could unlock further gains.
Monday’s run was mostly spurred by a global return of risk appetite as the political logjam in Italy was resolved with the formation of a coalition government in Rome on Friday.
That pushed the euro to a two-week best, and emerging market assets followed.
A drop in U.S. bond yields, with sentiment there riled by another twist in the trade war with China warning the United States against tariffs, saw some money flow back into E.M. debt.
The yield on Pretoria’s benchmark bond due in 2026 was up 1.5 basis points at 8.585 percent.
Traders remain cautious, wary of a dollar bounce ahead of next week’s Federal Reserve meeting, and local gross domestic product numbers due later in the session.
Likely ranges between 12.4500 to 12.7000.
Stocks are set to open slightly lower, with the Johannesburg Top-40 futures index down 0.13 percent.