South Africa’s Economy Contracts Unexpectedly in Second Quarter

The local unit has shed almost 15 percent of its value against the dollar this year, pressured like other commodity currencies by slowing growth in the world’s second largest economy, as well as expectations that U.S. rates will soon rise.

Forward-rate agreements, used to speculate on interest rates, are pricing in at least a 25 basis points rate increase at each of the next two policy meetings.

A rudderless economic policy, labour strikes, frequent electricity blackouts and a neglected manufacturing sector make the South African rand vulnerable to global currency fluctuations, he said. Panic selling engulfed developing markets on Monday as Chinese shares plunged the most since 2007, commodity prices slumped to a 16-year low, and a gauge of currencies sank to a record.

The currency of the continent’s most developed economy tumbled to 14.0682 against the greenback before midday, an 8.5 percent drop, before it pulled back to 13.33 by mid-afternoon. It is imperative to state that the levels seen on the currency were last seen in 2001. “My experience is when you get price action like this, it’s normally at the beginning of something, not the end of something”. “I think that September is on the table and if anything they will move again because of the currency”. In the first quarter, the economy grew 1.3 percent.

“The worry about this Q2 data is that the shock has not even really arrived at all yet in terms of the China commodity terms of trade”, said Peter Attard Montalto, an emerging market economist at Nomura worldwide.

On a year-on-year basis, the economy expanded by 1.2 percent in the second quarter, compared with growth of 2.1 percent in the previous three months.