South Africa may be on the brink of recession
South Africa’s Rand has plunged to an all-time low against the United States Dollar suggesting that there’s a chance for recession in Africa’s second largest economy. A greater cause for worry though, is the reliance of South Africa’s economy on sales of commodities which has China as the major source of demand. With China’s sudden crash, there may be overwhelming consequences for South Africa.
On Sunday, 23rd August, a dollar was equal to R13.20, according to the South African Reserve Bank (SARB) and overnight, there was a sudden hike in the rand rates. This rise brought the value of a dollar to R14.o7. With the SARB’s forecast of a further decline in Rand by November, it is not a good news for South Africa.
The devaluation in Rand is an aggregation of cumulative factors. In 2008, the global economic crisis resulted in many markets head crashing and throughout this year South Africa’s government has had major challenges within the power sector. However, the Chinese economy’s snail-paced growth, and unexpected devaluation of its currency earlier this month has impacted imminent problems in South Africa.
China is the second largest economy in the world, thus its current economic state could result in a global economic meltdown with unfortunate consequences for South Africans. A weak and devalued Rand will mean high interest rates, adverse effects on infant industries and the emergence of heavily indebted citizens. For an emerging market like South Africa, adjusting to this downturn could be tough.
But interestingly, South Africans seem unfazed. They went on social media to make the trending news of the fallen Rand of no effect through the spread of the Twitter #strongerthantherand current.
I love South Africa. Our currency is tanking, but do we panic? Nope, we create a bloody brilliant hashtag. #StrongerThanTheRand
— Emmy Schofield (@WildRoverGirl) August 25, 2015
— The Independent (@Independent) August 26, 2015
— ALN (@Prosper4Africa) August 26, 2015
What doesn’t kill you makes you #StrongerThanTheRand
— Pabi Moloi (@PabiMoloi) August 24, 2015
Yesterday, due to South Africa’s central bank intervention on the Rand volatility, the currency appreciated in value by 0.11%. However, this intervention does not rescue South Africa’s economy from the worrisome Chinese economic downturn. Although Alex Smith, the chief economist of the First National Bank (FNB) of South Africa is quite optimistic that the Rand would regain ground in the international market, the impact of China’s crippled economy on South Africa yet remains unresolved.