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Rand Slumps as Growth Contracts for the Second Time in 2019

South African Rand Extends Decline After GDP Contracts in 3Q

(Bloomberg) --

The rand weakened after a report showed South Africa’s economy unexpectedly contracted in the third quarter, extending declines following news that the U.S. is moving forward with December tariffs.

The currency led emerging-market losses Tuesday, weakening as much as 1.1% to trade at 14.6973 per dollar after a Fox News report that the U.S. is still moving forward with Dec. 15 tariffs on China. Yields on government dollar bonds due September 2047 rose to as high as 6% as of 10:48 a.m. in New York, and South Africa’s benchmark equities index remained 0.6% lower.

“Unfavorable global macroeconomic conditions inspired by world trade uncertainty are certainly not providing the South African economy any favors, while domestic risks continue to add up and weigh further on Africa’s most industrialized economy,“ said Lukman Otunuga, an analyst at FXTM. “The central bank in South Africa is positioned to ease monetary policy during the first quarter of 2020,” as the economic contraction in the third quarter increases the likelihood South Africa loses its last remaining investment-grade rating from Moody’s Investors Service.

Rand Slumps as Growth Contracts for the Second Time in 2019

Tuesday’s GDP report was the second this year to show shrinkage in Africa’s most industrialized economy, raising the risk of a credit downgrade by Moody’s Investors Service as soon as the first quarter of 2020 that would rank the country among the junk, or non investment-grade borrowers. The contraction means full-year economic growth, which hasn’t exceeded 2% since 2013, could be even lower than the 0.5% projected by the Treasury in October, giving investors even more reason to ditch South African stocks and adding to outflows of $8.5 billion year-to-date.

Gross domestic product shrank an annualized 0.6%, compared with a revised 3.2% expansion in the second quarter, Pretoria-based Statistics South Africa said. The median of 14 economist forecasts compiled by Bloomberg was for no growth. The economy expanded 0.1% from a year earlier.

“This is clearly disappointing at the time when South Africa urgently needs some positive news,” said Piotr Matys, a strategist at Rabobank in London.

The weaker-than-anticipated GDP underscores the challenges President Ramaphosa and his administration face as they struggle to fill the nation’s coffers in order to deal with fiscal issues and avoid a credit downgrade, Matys said.

To contact the reporters on this story: Colleen Goko in Johannesburg at cgoko2@bloomberg.net;Andres Guerra Luz in New York at aluz8@bloomberg.net

To contact the editors responsible for this story: Dana El Baltaji at delbaltaji@bloomberg.net, ;Carolina Wilson at cwilson166@bloomberg.net, Justin Carrigan, Robert Brand

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