JOHANNESBURG – The rand yesterday plunged nearly 2 percent as first quarter gross domestic product (GDP) contracted the most since 2009, putting the SA Reserve Bank under further pressure to loosen its monetary policy at its meeting next month to stimulate growth.
The fall saw banking stocks also tumbling, wiping billions of rand in value as Statistics South Africa (StatsSA) said its data showed that the economy shrank 3.2 percent quarter on quarter after a five-month strike in the gold mining sector reduced mining production and power outages hurt output in the manufacturing sector.
Absa fell 4.21 percent to R165.99, Standard Bank also surrendered 4.21 percent of its stock to R193.97, while FirstRand eased 3.79 percent to R65.44. Nedbank also weakened 3.54 percent to R256.50 and Capitec Bank 3.11 percent to R1274.07.
StatsSA said manufacturing declined 8.8 percent while the key agriculture sector fell 13.2 percent and trade eased 3.6 percent in the first quarter.
Only three sectors – government services; personal services; finance, real estate and business services – showed growth.
The rand weakened to R14.72 against the dollar following the release of GDP data, compared to R14.46 on Monday.
By 5pm, the rand was bid at R14.962 against the greenback.
StatsSA said year-on-year GDP growth slowed to zero during the quarter against forecasts of 0.7 percent increase.
Capital Economics economist John Ashbourne said the poor GDP print would increase pressure on President Cyril Ramaphosa to push harder on his reform plans.
Ashbourne said given downbeat survey data for the second quarter, it was possible that the economy fell into another technical recession over the first half of the year.
“The weaker-than-expected performance in the first quarter has led us to cut our full-year forecast from 1.5 percent to 0.5 percent,” Ashbourne said.
“On the monetary front, we think that weakness in the first quarter will add to the argument for looser policy.
“We’ve long believed that the next move will be a cut, and have pencilled in a 25 basis point reduction in the key rate at July’s Monetary Policy Committee meeting.”
Last month the South African Reserve Bank (Sarb) split 3-2 in a vote to keep the benchmark repo rate steady at 6.75 percent, indicating bias to a more accommodative monetary policy stance, given the positive downward trajectory in inflation expectations.
The last time the central bank cut the repo rate was in March last year.
Jameel Ahmad, global head of currency strategy and market research, said the reality of an impending world slowdown pushed the button further into another recession.
Ahmad said the spotlight now needed to turn towards what Sarb could do to deflect the repercussions of an impending downturn.
“The answer is simple – Sarb has to cut interest rates. And it needs to do it sooner rather than later to not stand as victim of weakening global demand for goods. Sarb does have the envy of other central banks at its hands in that it can ease monetary policy, should it choose to do so,” Ahmad said.
“Policymakers would need to get on with easing policy to reinvigorate domestic momentum through lower interest rates, in the hope of encouraging higher consumption.”
The slowdown in the GDP comes after embattled power utility Eskom implemented stage four load shedding in February and March to 4 000MW off the national grid.
North West University Business School economist Raymond Parsons said load-shedding and policy uncertainty were underestimated as the main culprit in the first quarter, having probably shaved about 0.6 percent off expected growth for this year.
“This again underscores the imperative need to stabilise Eskom, especially with the recent resignation of its latest chief executive, and more widely to ensure the security of power supply,” Parsons said.