The Rand Drops Vs US Dollar in Wake of Recession Announcement
The economic year is divided into 4 parts of 3 months (quarters). If over 6 months (2 quarters) the economy is shrinking* then this is defined as a recession. Stats SA have released figures which show that over the last 6 months the country has been doing poorly and the country is now officially in a recession.
R15 To 1 US Dollar
For a long time the Rand has been sticking below the R15/1US$ mark and the psychological barrier it represents but the gap has been steadily closing. As people realised that the SA economy has been shrinking and not performing even as poorly as the most pessimistic expected, the Rand took a significant knock vs the US currency (and others).
The Rand has been caught in the crossfire of some recent international investment patterns involving the US and Turkey among other things, which saw it take some dips. This now official local recession is set to drive it even further down in relative value vs strong international currencies such as the Euro, Pound and Dollar. Government debates about expropriation of land has seen large mining operations shrink their local exposure and workforces and also seen foreign investment stall. These are factors which negatively impact on the economy (even though the mining sector is one of the few which showed an increase over the last 3 months according to Stats SA).
Agriculture Down by 29%
Among the various “sectors” or groups of industries which are tracked for their performance, it was Agriculture which has been hit the hardest over the last 6 months or more. The figures show that production and output have dropped by a very worrisome 29% (made worse by the countrywide drought). With the threat of land expropriation on the horizon, many commercial farmers are beginning to look to leave the country and sell off farms rather than invest and push up production.
‘The figures show that production and output have dropped by a very worrisome 29%’
Recession Means Tough Times
This official ‘recession’ status is merely a public statistical acknowledgement of how tough things are for consumers. Recently, another coming small petrol price increase was announced with promises that government would absorb most of the increase (before the Rand dropped so dramatically again). This combined with the weakness of the Rand look set to make things increasingly difficult for consumers to go out and spend which in turn puts pressure on businesses, who then struggle to pay their staff and buy new products.
*Value of GDP