Pound to South African Rand Exchange Rate Strengthens

January 20, 2015 - Written by Ben Hughes

STORY LINK Pound to South African Rand Exchange Rate Strengthens

The Pound Sterling advanced against the South African Rand after the International Monetary Fund announced that it had its global growth forecast for the global economy and made a third consecutive cut to its forecast for the South African economy.

The South African economy has been under pressure over the past year and expectations are growing that the nation will experience another year of volatility as a result from an unreliable energy supply and the threat of strike action in a number of key economic sectors. The economy has also suffered from the sharp falls in commodity prices. Iron ore, gold and other metals have weakened in value over the past few months adding to the pressure on economy.
Data showed that South African mining production weakened further in November with mining output falling by 0.4% from the previous year. The report adds to the soft manufacturing report published last week. Mining production fell by 1.2% month on month, mainly due to the decline in platinum group metals produced. Gold and coal production was also lower.

A report released in China added to the Rand’s woes after it showed that the Chinese economy grew by 7.4% in 2014, just above economist forecasts for a level of 7.2%. While the growth rate beat other major economies, the data was seen as a negative as it was down from the previous figure of 7.7% and the double-digit growth numbers seen before 2010. The pace of growth last year was the slowest seen since 1990 and prompted the International Monetary Fund (IMF) to announce that it has cut its growth expectations for the global economy.

Also weighing on the Rand was the announcement by the IMF that it had also cut its growth forecast for the South African economy. The IMF cut its forecast for the nation’s economic growth this year from 2.3% to 2.1%, the third consecutive cut in just 12 months. Analysts cited ‘self inflicted’ problems for the reason for the cut.

'We remain quite bearish on the outlook for South Africa. While the oil price will provide a much-needed reprieve in the short term, export prices remain depressed. Structural constraints on electricity supply, transport infrastructure and labour productivity will continue to plague the economy for the foreseeable future,’ said RMB Global Market Research.

The nation continues to be negatively impacted by an unreliable energy supply and the prospect that strike action will return to the mining sector.

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