Rand Declines for Third Day as Growth Data Drives Rating Concern

The rand retreated for a third day and bonds declined as Standard & Poor’s said South Africa’s economy hasn’t made any advances warranting a change in its negative outlook.

Mining output contracted in March while unemployment rose in the first quarter, reports showed last week. The National Union of Mineworkers said on May 10 it’s prepared to strike against job cuts by Anglo American Platinum Ltd. While labor unrest and rising unemployment are not new from a ratings perspective, recent economic data illustrate why South Africa’s outlook was affirmed in October, Konrad Reuss, head of the company’s sub-Saharan African unit, said on May 10. S&P cut the nation’s rating one level to BBB in October.

“On this fiscal side the outlook is still biased for deterioration due to slower-than-expected growth and, as a result, a potential rating downgrade,” Carmen Nel, a Cape Town-based analyst at Rand Merchant Bank, said in e-mailed comments. “Unemployment, labor unrest and slowing growth support the negative outlook on the South African sovereign credit rating.”

The rand depreciated 0.3 percent to 9.1473 per dollar at 5:29 p.m. in Johannesburg. Yields on benchmark 10.5 percent bonds due December 2026 rose two basis points, or 0.02 percentage point, to 6.7 percent. The yield has climbed 10 basis points since reaching a record low on May 9.

Borrowing Costs

Retail sales growth slowed to 2.4 percent in the year through March from 3.8 percent the previous month, a report may show on May 15, according to the median estimate of 15 economists in a Bloomberg survey. Mining output contracted 3.5 percent in March, while manufacturing declined 2.2 percent, reports showed on May 9.

Unemployment rose to 25.1 percent in the three months through March from 24.9 percent in the previous quarter. The budget deficit widened to 15.5 billion rand ($1.7 billion) in March from 9.65 billion rand a month earlier, according to figures released on April 30.

Violent labor protests last year cost South African miners as much as 15 billion rand ($1.7 billion) in revenue and contributed to the currency’s 5.1 percent slide in December.

A slowdown may spur the central bank to lower borrowing costs as soon as next week, Charles Robertson, chief economist at Renaissance Capital Ltd. in London, said by phone on May 10.

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