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ZAR Forecast: Pound to South African Rand Softens after GDP Data Release

February 24, 2015 - Written by Tim Boyer

The Pound softened against the South African Rand after Gross Domestic Product data out of Africa’s most advanced economy smashed economist forecasts. The South African economy is the second largest in Africa and benefitted from a rally in the mining and manufacturing sectors, which had suffered from a series of strikes.

According to the South African Statistics Office, GDP increased by 1.4% on a quarterly basis compared with the preceding quarter where it expanded by 2.1%. The figure also beat economist forecasts of a rise to 3.4%. On a year on year basis, the economy expanded by just 1.5% its lowest increase seen since 2009’s recession.

The five-month long wage strike in the platinum mining sector and weeks of unrest in other sectors inflicted a lot of damage to the national economy in the early part of 2014.

Stats South Africa said the largest contributions to the quarter-on-quarter growth of 4.1% were as follows: the manufacturing industry contributed 1.2 percentage points based on growth of 9.5%; the mining and quarrying industry contributed 1.1 percentage points based on growth of 15.2%; and finance, real estate and business services contributed 0.7 of a percentage point based on growth of 3.5%.

‘This is the first quarter that most of the industries actually went back to normal production. Hopefully we can keep this trend,’ said Gerhardt Bouwer, executive manager of national accounts at Statistics South Africa.

Despite the data, economists are forecasting that the South African economy will grow but will remain below the full potential target of 2.5% as concerns over the nation’s power grid and tax hikes will weigh.


‘It’s going to be difficult to keep up with this quarterly GDP performance given the electricity supply problems that affect confidence and output,’ said Elize Kruger an economist from KADD Capital.

The Rand’s gains against the Pound and other major peers are likely to be short-lived, as market attention will now shift to Wednesday’s budget speech by Finance Minister Nhlanhla Nene. The minister is expected to announce a range of tax increases and cuts to public sending as he seeks to balance the nation’s finances.
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Sterling meanwhile will likely experience volatility midweek due to the release of the latest UK Mortgage Approval data. Thursday will see the publication of second estimate UK GDP data. If that data comes in worse than forecast then we could see the Pound soften.

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