This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
New leadership in South Africa (post December last year) has seem business confidence within the country much improved. However, while business confidence has improved, the South African economy unfortunately has not. Q1 2018 Gross Domestic Product (GDP) data showed a substantial contraction in the South African economy.
While a marginal contraction in South Africa’s first quarter Gross Domestic Product (GDP) data was expected, the figure was far worse than consensus estimates had predicted. Q1 2018 real GDP, measured by production, declined by 2.2% quarter on quarter following an increase of 3.1% in Q4 2017.
The negative contributors to the figure were widespread with the Primary, Secondary and Tertiary sectors all weighing on the economy. The agriculture fishing and forestry industry was reported by Statssa as having declined by 24.2%, while the mining and quarry industry contracted by 9.9%. The manufacturing industry saw six of its ten divisions reporting negative growth rates which amounted to a 6.4% aggregate decline within the sector. The construction sector declined by 1.9% and the the trade, catering and accommodation industry by 3.1%.
There were some parts of the Tertiary sector which did manage to etch out modest growth in Q1 2018, they were as follows
- Finance, real estate and business services increased by 1.1%
- General government services increased by 1.8%
- Personal services increased by 1.2%
While our local bourse has seen a fairly muted reaction to the GDP data the Top40 Index does trade well off session highs. There has been noticeable weakening of the Rand which has shed roughly 1% against the dollar and the euro and around 1.5% against the British pound. The weakening of the domestic currency is a direct reflection on the data as the currency was relatively unmoved leading into the news event. Further evidence of the domestic catalyst is that emerging market currency peers such as the Brazilian Real and Argentine Peso trade firmer on the day while the Russian Ruble trades flat on the day.