The Pound South African Rand (GBP ZAR) exchange rate surged today as the latest South African GDP figures showed that the country entered its second recession in eight years.
South Africa Rand (ZAR) Sinks as Nation Falls into Recession
According to data released by government agency, Stats SA South Africa’s economy contracted 0.7% in the first quarter of 2017. This was a major deviation from expectations that it would grow by 0.9% and caused the country to enter a technical recession after it also contracted 0.3% in the previous quarter.
Despite the country beginning to recover from a drought in 2015, the report shows that all but the agriculture and mining industries shrank at the start of the year as political uncertainty over the last 6 months continued to hamper growth in the country.
Concerns over Jacob Zuma’s presidency came to a head in March following the firing of much respected finance minister, Pravin Gordhan, which saw South Africa’s credit rating lowered to ‘junk’ status with two different rating agencies.
Analysts are also concerned about the prospect of the further contractions this year as lacklustre data in the second quarter casts doubts over future growth.
Annabel Bishop, the chief economist at Investec Ltd told Bloomberg;
‘There is a risk that these contractions are not over and we could see another negative coming out in the second quarter of this year.’
Election Concerns Continue to Weigh on Pound (GBP)
Meanwhile the Pound found its gains trimmed by the afternoon as the latest daily poll by YouGov suggested that the Conservatives were likely to fall 22 seats short of a majority in Thursday’s election.
Markets fear that such an outcome will likely harm the government’s position in the upcoming Brexit negotiations, as a hung parliament would leave Theresa May without the mandate to pursue her plans for a hard Brexit.
GBP ZAR Forecast: More Volatility in the Pound Likely in Run up to the Election
The GBP ZAR exchange rate is likely to continue to fluctuate over the next couple of days as the UK prepares to go to the polls on Thursday, with signs that the Tories will not win an outright majority likely to cause Sterling to tumble.
Meanwhile the South African Rand may weaken again later on in the week as annualised mining production figures are expected to show that output growth declined from 15.5% to just 5.9% over the last 12 months.
Current Interbank Exchange Rates
At the time of writing the GBP ZAR exchange rate was trending around 16.5344 and the ZAR GBP exchange rate was trending around 0.0604.
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