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Increasing fears over SA's economy

Widespread strikes, weak manufacturing and a slump in the rand are putting strain on the economy.

Widespread strikes, weak manufacturing and a slump in the rand are putting strain on the economy. Picture: EWN.

JOHANNESBURG - Economists are warning of increasing strain as strike action spreads across various sectors, the rand hits fresh lows, and car sales and manufacturing figures collapse.

With three major strikes bearing down on South African industry, there are renewed fears that mass action will leave the country unable to recover from a looming recession.

The strike on the platinum belt - the longest and costliest in South African mining history - is nearing the five-month mark. This comes as a new strike by workers in the sugar industry is gaining momentum and up to 200,000 workers in the metal and engineering are threatening action.

Workers affiliated to the Association of Mineworkers and Construction Union downed tools in January, demanding a basic salary of R12,500, while members of the Food and Allied Workers Union went on strike last week for a 15 percent wage hike.

Investment Solutions Chief Strategist Chris Hart says strike action has had a crippling effect on direct foreign investment already and is diminishing the prospect of recovery.

Hart says investment in South Africa's financial markets has remained positive - as shown by stocks edging up nearly half a percent on Monday - but the same cannot be said about direct investment in labour.

"Investors are very happy to be involved in the financial market, stock market and bond market," he explains, "but they're not happy to be involved in the actual day-to-day running of the economy."

He says the recent negative growth in the country's GDP - the first since 2009 - can only be reversed through investment.

"The problem is that we're in a recession and we need investment to get out of it. There is no real driver of growth at this stage."

There's still no end in sight for the platinum strike and while negotiations continue in the sugar industry, union leaders say most of their demands have not yet been addressed.

RAND SUFFERS

Meanwhile, the rand fell more than one percent to its weakest in two months against the US dollar today as a recent raft of weak data rekindled investor concerns about the ailing economy.

The rand reached a session low of 10.6960 to the dollar, a level last seen on 27 March according to Thomson Reuters data.

The rand extended losses after data showed South Africa's new vehicle sales fell 9.2 percent year-on-year in May to 49,465 units.

At the same time, car export sales for the month fell by a massive 40.5 percent year-on-year to 15,613 units.

The market is still reeling from last week's numbers showing the economy shrank in the first quarter of the year, the first contraction since a 2009 recession.

"The underperformance of the rand is quite understandable because, for the last 10 days, the market has been surprised on the negative side by all the data out of South Africa," said HSBC EMEA forex strategist Murat Toprak.

"There is a clear substantial deterioration of the macroeconomic situation in South Africa and the market has started to care about the economic dynamics."

For more on the struggling economy, listen to Bruce Whitfield's interviews with Kagiso Asset Management's Head of Research Abdul Davids and ETM Analytics MD George Glynos.

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