Bloomberg News

Rand Falls as Manufacturing Slumps, Current Account Gap Widens

December 09, 2011

Dec. 8 (Bloomberg) -- The rand fell against the dollar and euro after manufacturing growth in South Africa slumped and the current account gap widened, reducing the appeal of assets in Africa’s biggest economy.

The currency retreated as much as 1.1 percent to 8.1105 per dollar. The rand pared its decline after jobless claims in the U.S. fell to the lowest level in nine months, trading 0.2 percent weaker at 8.0412 as of 3:40 p.m. in Johannesburg. Against the euro, it declined 0.3 percent to 10.8031.

Factory output growth in October eased to 1 percent from 8.1 percent in September, Pretoria-based Statistics South Africa said, missing the 5.7 percent median estimate in a Bloomberg survey of 12 economists. The current account shortfall swelled to 3.8 percent of gross domestic product in the third quarter, the most in 18 months, the central bank reported earlier. Economists had estimated a deficit of 3.7 percent.

“It’s all rather dismal,” said Ian Cruickshanks, head of treasury strategic research at Johannesburg-based Nedbank Capital, in a phone interview. “The outlook for our trade account is not very bright. Be prepared for tough times.”

The worsening debt crisis in Europe, which buys about a third of South Africa’s manufactured goods, has sapped demand for exports. That may persuade the Reserve Bank, led by Governor Gill Marcus, to keep its benchmark interest rate unchanged at a 30-year low of 5.5 percent even as price pressures increase.

The current account gap, which the government has referred to as the economy’s “Achilles’ heel,” has narrowed from 8.5 percent in 2008 as growth in Africa’s biggest economy stalled. The deficit widened this year as a recovery in consumer spending added to imports and manufacturing and mining exports slumped.

‘Rand’s Weakness’

“The slump in manufacturing production growth is negative for the growth outlook and, hence, the rand’s fundamentals,” Nomvuyo Guma, a Johannesburg-based currency strategist at Standard Bank Group Ltd., wrote in e-mailed comments. “With the rand already weakening on the back of earlier data showing a wider-than-expected current account, this data could aggravate the rand’s weakness.”

The European Central Bank cut its benchmark interest rate by 25 basis points to 1 percent today before Europe’s leaders convene in Brussels for talks to frame the fifth “comprehensive” solution in 19 months to a debt crisis that’s left Germany and France facing the threat of losing their AAA rating from Standard & Poor’s.

“Bitter experience suggests we shouldn’t hope for too much from Europe,” John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in e-mailed comments. The rand “could easily end the day at 7.90 or 8.20” per dollar as volatility rises, he said.

The rand pared its decline after fewer Americans than forecast filed applications for unemployment benefits last week, a signal the U.S. labor market may be on the mend.

“There are still some growth prospects in the U.S., but they are very limited,” Cruickshanks said. “The markets are very tentative.”

South Africa’s 13.5 percent bonds due 2015 gained for the first day in three, driving the yield down one basis point, or 0.01 percentage point, to 6.69 percent.

--Editors: Peter Branton, Linda Shen

To contact the reporter on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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