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South Africa's economy contracts for 2nd consecutive quarter, sending rand lower

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South Africa's economy contracts for 2nd consecutive quarter, sending rand lower

The South African rand fell Sept. 4 on news that the country's economy contracted for the second straight quarter due to declining activity across manufacturing, agriculture, transport and other industries.

The country's GDP shrank an annualized 0.7% quarter over quarter after a revised 2.6% contraction in the first quarter, Statistics South Africa said, marking the first double contraction since 2008-2009.

Agriculture production fell 29.2% in the second quarter following a 33.6% decrease in the first quarter, primarily due to a decline in field crops and horticultural products, according to the national statistical service.

Manufacturing activity slid for the second consecutive quarter, decreasing 0.3% in the second quarter as production of electrical machinery, transport equipment and furniture products slowed down.

The trade industry slipped 1.9% in the second quarter amid subdued motor and retail trade sales and a decline in household consumption expenditure.

Mining, construction, electricity, finance and personal services industries did record growth during the quarter.

The rand was down 1.90% against the dollar as of 6:12 a.m. ET.

"Weak growth, rising inflation, and wide external deficits are likely to keep the rand under pressure. Markets are likely to test the [South African Reserve Bank], which is generally reluctant to hike rates in defense of the rand," Marc Chandler, global head of currency strategy at Brown Brothers Harriman, wrote in a research note.

South Africa's major banks have been outperforming the stuttering domestic economy but a weak rand, tepid earnings growth and uncertainty over the policies of the country's new president are sapping investor appetite for lenders' stocks.