Johannesburg - The rand weakened on Friday after both the current account and trade deficits widened in the third quarter, renewing concerns about the economy.
By 5pm, the currency had slipped 0.88 percent to 13.7650 per dollar, extending the previous session’s losses as the greenback rose to price in a near certain interest rate hike by the Federal Reserve this week.
The rand backtracked after the data and remained on the back foot for most of the session, near its softest in one week, in low volume trade with most traders wrapping up positions ahead of December holiday period.
The Reserve Bank said in its December quarterly bulletin the main reason for the deterioration in the rate of growth in real gross domestic product (GDP) in the third quarter to 0.2 percent from 3.5 percent in the previous quarter was a sharp decline in exports.
It said subsequent to two successive quarters of contraction, real domestic expenditure increased in the third quarter. Following a decline of 4.2 percent in the second quarter, gross domestic product expenditure increased at an annualised rate of 8.1 percent in the third quarter.
“Stronger growth in real final consumption expenditure by households and general government alongside a firm accumulation of inventories outpaced a decline in real gross fixed capital formation over the period. Real gross domestic expenditure nevertheless contracted by 0.6 percent in the first three quarters of 2016 when compared to the corresponding period in 2015.”
Final consumption by households picked up in the third quarter, edging higher from an annualised rate of 1.4 percent in the second quarter to 2.6 percent in the third.
The central bank said gross fixed capital formation registered its fourth successive decline in the third quarter, albeit at a slower pace than before.
S&P’s downgraded South Africa’s local debt by one notch to BBB at the beginning of the month but kept the country’s sovereign credit rating unchanged at BBB-, one level above “junk” status, while saying the economy was still struggling. Local currency assessment was cut one level to BBB, the second-lowest investment grade
“Although less than one-tenth of the government’s debt stock is denominated in foreign currency, non-residents hold about 35 percent of the government’s rand-denominated debt, which could make financing costs vulnerable to foreign investor sentiment, exchange rate fluctuations, and rises in developed market interest rates,” said the ratings agency.
National government’s domestic debt, accounting for 91 percent of total gross loan debt, amounted to R1 963 billion as at the end of September - R144 billion more than at the end of March.
The Reserve Bank said as a percentage of GDP, domestic debt increased from 44.5 percent at the end of March to 46.3 percent in September.
The foreign debt amounted to R192 billion as at September 30, some R7.1 billion less than the amount recorded in March.
“Rising national debt levels and debt service costs as well as the consistent downward adjustment of growth projections and tax revenue shortfalls, among other things, have reduced the authorities’ degrees of freedom in setting fiscal policy.”