Rand Report- GDP growth data

Statistics South Africa (Statssa) reported that South African Gross Domestic Product (GDP) increased by 1.4% in the fourth quarter of 2018, bringing full year GDP growth for 2018 to 0.8%. The low level of economic growth within the country does however see a recovery in the third and fourth quarters from economic contraction in the first and second quarters of the year.

A summary of the fourth quarter GDP data is as follows:

Primary Sector

• The agriculture, forestry and fishing industry grew by 7.9%
• The agriculture, forestry and fishing industry added 0.2% to GDP growth
• Mining and quarry industry contracted by 3.8%
• Mining and quarry industry contributed -0.3% to GDP growth
• The weak mining and quarry contribution to GDP followed low production in gold, “other” and diamonds

Secondary Sector

• The manufacturing industry grew by 4.5%
• The manufacturing industry added 0.6% to GDP growth
• The manufacturing industry was the largest positive contributor to the GDP figure
• The construction industry contracted by 0.7%

Tertiary Sector

• Finance, real estate and business services increased by 2,7%
• General government services decreased by 0,6%
• Personal services increased by 1,7%

Growth in expenditure on GDP

• Expenditure on real gross domestic product increased by 1,6% in the fourth quarter of 2018
• Household final consumption expenditure increased by 3,2% in the fourth quarter of 2018
• Final consumption expenditure by general government increased by 0,6%
• Exports increased by 11,1% and imports decreased by 16,0%

The USD/ZAR

The chart below shows that the initial reaction to the domestic GDP data was positive, with the rand gaining against the dollar. The GDP followed on from positive PMI data released earlier on in the day which also provided a domestic catalyst for short term ZAR strength. The dollar has however started to strengthen against most developed and emerging market currencies post the domestic news and in turn we have seen the rand continuing its short term weakening trend against the greenback.

The below USD/ZAR chart shows that the currency pair has recently broken out of a bullish flag formation (highlighted with white shaded channel). The pattern suggests a continuation of the short-term USD/ZAR uptrend previously in place. R14.35/$ is the initial target from the move, a break of which (with a close) sees R14.65/$ as the next upside resistance target.

Traders of this pattern not yet committed might hope for a pullback towards R13,95/$ for long entry. A close below R13.80/$ would consider the failure of the flag formation / bullish assumptions.