The rand has recovered significantly since mid-May, just like other EM currencies. Tuesday’s GDP data for Q1 provided additional support. However, this is just a brief flicker, according to economists at Commerzbank.

ZAR investors should mainly keep an eye on fiscal risks

“At seasonally adjusted 1.9% compared with the final quarter of 2021 the economy recorded much stronger growth than expected. At the same time, the previous quarter’s result was revised slightly to the upside to 1.4%. That results in QoQ growth of 3%. Even though this is positive, the data is likely to constitute merely a brief flicker as this momentum is unlikely to be sustainable.”

“Not only the devastating floods in parts of the country in early April as well as massive shortages in the electricity supply are likely to notably dampen activity in Q2. The high inflation rate and rising wages are also likely to slow the economy.”

“We expect the rand to trend weaker medium-term. In view of the weak growth prospects for South Africa and the less favourable global interest rate environment, ZAR investors should mainly keep an eye on fiscal risks.”