‘Honey, we shrunk the economy.’ The end of Ramaphoria?

Following news the economy contracted 2.2%, business has adopted a more realistic view of the president's challenge to turn South Africa around.

South Africa’s gross domestic product contracted an annualised 2.2% in the first quarter of 2018, the latest data shows, placing a full stop at the end of a period of optimism about the economy under new ANC and South African president Cyril Ramaphosa.

Bloomberg reports that not only has the rand weakened, but yields on benchmark bonds have risen and retail and banking stocks have also fallen.

The economy shrank the most in nine years in the first quarter, which the news service believes casts a “pall over President Cyril Ramaphosa’s promise to boost growth”.

A trader Bloomberg spoke to said that bonds and the rand were likely to trade defensively in the immediate future, as markets were now “focusing on the fundamentals of South Africa”, which are challenging.

The bad GDP results also led to a fall in the rand during trade, while banking stocks were particularly hard hit.

Analysts have said Ramaphosa’s rise was initially a positive contributor to good sentiment and confidence, but these levels have returned to much the same as what they were late last year when Jacob Zuma was still in power, as it will probably take years to implement genuine, lasting reforms to South Africa’s economic prospects.

Businesses are now awaiting evidence of real reform in the country, since output only expanded 0.8% year-on-year, less than half of what many economists were hoping for.

The news also means the Reserve Bank is unlikely to act boldly on increasing interest rates in the immediate future.

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Cyril Ramaphosa

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