Underperforming Economic Sectors and a Strong Rand

Underperforming Economic Sectors and a Strong Rand

With the Rand hovering around an all-time high against the dollar the last week, there is no surprise that the economy is feeling the knock on effects. According to Cees Bruggemans at FNB, the June 2010 manufacturing output was 8.8% higher than the same month last year and a 7% increase in the food and beverages sector respectively. These are both strong signs that the South African economy has fundamental strengths to support the tourism boom associated with the FIFA world cup.

While the growth of the South African Manufacturing and mining sectors continue to rebound from the lows of 2009, we are seeing a resistant bounce in other sectors of the economy less resilient to recessionary pressures. Durable and semi-durable goods have yet to see a turn around and repair of many of these sectors can only be expected in Q4 of 2010 or Q1 of 2011.

With the strong Rand currently trading at 7.2862 against the Dollar, according to forex traders eToro, further increases in the export markets could be dampened in turn having a knock on effect and slowing economic growth, which according to Reserve bank of South Africa is expected to hold steady at 2,9 per cent during 2010 compared to a forecasted global average of 4.6% predicted by the International Monetary Fund’s World Economic Output report from July, 2010.

While much of the recovery will depend on the output of the underperforming sectors of the economy, it is important to see the strength of the Rand remains a major element of the repair. The Rand has built strength against the dollar much in part because of the instability in the Euro area and volatility of the EUR/USD paring.

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