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South African economy in recession

Rand drops further after disappointing figures

After the South African currency recently reached its lowest point in ten years, the bad news about the economy resulted in the exchange rate dropping even further last Tuesday. The currency was already in dire straits, in part due to uncertainty regarding emerging markets.

The news that the South African economy declined by 0.7%, decreased the exchange rate of the rand even more. On 4 September, the exchange rate closed at 17.97 rand for 1 euro. Earlier this year, on 22 February, the rand reported a rate of 14.20 for 1 euro. The background of the 0.7% decline in the economy is less rosy. South Africa officially entered into a recession due to the negative growth figure, after a decline of 2.6% was reported after the first quarter of this year.

Agriculture, forestry and fishery all reported a considerable decline of 29.2%, which affects a decline of 0.8% in GNP. The transport, storage and communication sector also felt it, with a loss of 4.9%. The catering and accommodation sector received a blow of -1.9%.

Positive figures have also been reported, albeit only just. Mining grew by 0.4% during the second quarter. The financial, real estate and service sector also reported an increase of 0.4%. However, this wasn’t enough to compensate for the losses in the other sectors. Themes that are influencing the economy are playing in the background. Analysts mention uncertainty in various sectors. 

“The economy is still weak, in part due to uncertainty about policies. Investments in production and developments are hindered by uncertainty regarding the mining charter and land reforms,” said one analyst to Reuters. Besides, the country is looking back on a turbulent time during which, for example, president Zuma had to step down because of corruption, fraud, extortion and money laundering.

The South African rand isn’t the only currency in difficulty. The currencies of other emerging economies are also affected by the nervousness on the financial markets. The Turkish lira and Argentinian peso are two examples of currencies that declined in recent weeks. The (imminent) trade wars started by American president Trump offer no certainty for financial markets.
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