Picture: PUXLEY MAKGATHO
Picture: PUXLEY MAKGATHO

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.

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.

"An end to the recession in the eurozone is still out of sight," Commerzbank economist Christoph Weil said in Frankfurt.

At 5.40pm, the rand had weakened to R8.93/$ — 0.43% less than its previous close of R8.90.

"There is not much that can offer support for the rand at the moment," Vunani Capital markets analyst Kuziva Muganiwa said.

"The mining and farmland unrest and the recent retail figures have disappointed the rand and we could see the currency moving past R9 against the dollar."

The euro rallied to a two-week high against the yen and also rose against the dollar, despite the poor data released on Thursday.

Other data this week also highlighted the spillover effects of the debt crisis that has engulfed Europe’s periphery — in September eurozone industrial production fell at the fastest rate in three years, down 2.5% from August.

An increasing number of companies have been forced to close their operations in European markets, shedding thousands of jobs, as revenues have collapsed.

The eurozone crisis has cost companies $2-trillion in lost revenues globally, according to a recent study by Grant Thornton, which, along with record high unemployment, underscores the long-term damage that is being caused by the crisis, analysts said.

The JSE all share fell for a third day on Thursday in line with major stock markets around the globe.

US stocks fell more than 1% on Thursday after President Barack Obama reiterated his call for the wealthy to pay higher taxes, setting the stage for a budget battle with Republicans in Congress.

Economists said that, like other emerging market currencies, the rand had been negatively affected by fears about the growing unrest in Europe as strikes and protests against austerity measures spread.

Worries about whether US politicians can compromise over the federal budget to avert looming spending cuts and tax increases that could tip the economy into recession also curbed the appetite for perceived riskier currencies on Thursday.

Investors are worried that a stalemate in the US could hinder the country’s ability to grow, said Absa Capital economist Mike Keenan.

"The US government could cut back on spending and on tax relief. This means people could have less disposable income and this hampers growth," he said.

Analysts also ascribed Thursday’s fall in the rand to the renewable energy programme.

The Department of Energy recently signed contracts — worth R100bn — for the Independent Power Producer Procurement Programme.

"They (the producers) have to enter into forward transactions, which means they have to buy dollars or euros at future rates to protect themselves against rand depreciation," Mr Keenan said.