The rand pulled back from the brink of its weakest level against the dollar in more than three years on Thursday but remained under pressure as global growth fears heightened after data showed the eurozone slipped into its second recession in three years.
A weaker rand boosts South Africa’s competitiveness and dollar earnings, but it may spur inflation at a time when the economy is expected to slow because of the strikes spreading across the country.
Investors on Thursday fled to safe-haven assets to safeguard their wealth, threatening demand for riskier emerging market assets.
› Strike wave drag rand near R9/$
› The change in South African wine
The wildcat strikes that spread from the mines to farms in the Western Cape also weighed on the rand, one of the world’s most liquid emerging market currencies.
The rand has been on shaky ground since sliding sharply last month to its weakest level since April 2009 as investors dumped local assets on worries about the effect of a wave of illegal strikes.
"The backdrop really is an unsupportive one for the rand," 4CAST emerging market analyst Anisha Arora said on Thursday.
"And just as we thought labour was taking a turn for the better, we get this fresh uprising (on farms), and that causes panic once again," she said.
Figures released by the European Union (EU) yesterday showed the eurozone fell back into recession for the first time in three years as the deepening sovereign debt crisis in peripheral nations dragged down the core northern economies of the 17-member bloc in the third quarter.
Gross domestic product (GDP) in the eurozone shrank 0.1% in June to September, compared with the previous three months, when it fell 0.2%, as the economies of Greece, Italy, Spain, Portugal, Austria and the Netherlands contracted sharply, according to the EU’s statistics office.
German economic growth slowed in the third quarter, adding to evidence that Europe’s largest economy is flagging in the crisis.
GDP rose 0.2% - slower than the 0.3% increase in the second quarter - as Germany’s manufacturing sector, the engine of the eurozone’s economic growth, weakened further last month despite growth in exports.
Europe is the biggest market for South Africa’s manufactured goods.
Article continues on page two: and end to the recession in the eurozone is still out of sight...