Currency: Following a period where the ZAR was relatively resilient, ZAR headwinds are now fully in play, viz. heightened global risk aversion following Trump’s tariffs upheaval, concerns about the GNU’s future, and the passing of a budget that will continue to see suboptimal 1% growth. USD’s weakness may limit the ZAR’s depreciation going forward.
We still expect the ZAR to settle back into the R18.00 to R19.00 range, but there is a possibility with a prolonged risk-off scenario that the range will shift to a R18.50 to R19.50 range, with fair value still around R18.50.
Inflation: February’s headline CPI remained steady at 3.2% y/y, defying expectations of a slight increase. Core CPI, excluding food and energy, eased to 3.4% y/y from 3.5% y/y. While inflation will likely remain relatively subdued in the coming months, there are risks. US trade tariffs, the passing of an unfavourable budget and risks to the GNU will push inflation higher through a likely weaker ZAR.
Repo rate: The SARB kept the repo rate at 7.50% in March after three consecutive 25bp cuts. The bank took a cautious approach despite inflation being within the target range with domestic and global uncertainties influencing the decision. While much will depend on the extent of US Fed rate cuts, we expect only one more rate cut this year.
Government Finances: The fiscal year-to-date budget deficit stood at R323bn, similar to last year’s level. With debt-to-GDP around 75% and minimal fiscal reforms in the National Budget adopted by parliament, the country’s fiscal outlook remains weak. Meaningful improvements require austerity measures, growth liberalisation, and greater public-private partnerships to address inefficiencies.
GDP Growth: SA’s GDP expanded by 0.6% q/q in Q4 from -0.3% q/q in Q3. On a year-on-year basis, GDP growth came in at 0.9% y/y in Q4, up from Q3’s 0.3% y/y. Agriculture saw the most significant rebound, expanding by 17.2% after a sharp -28.8% decline in Q3, driven primarily by increased economic activity in field crops and animal products. This slight uptick will likely continue into 2025. However, economic growth will likely fall short of the government’s 3% target, which requires foreign investment to revitalise the nation’s neglected infrastructure.
Offshore conditions: Stock markets are crashing as Trump’s flawed tariff strategy backfires, risking a historic US selloff, worsened by tightening USD liquidity late in the business cycle. Aggressive cuts to government jobs and spending, led by the DOGE team, could flood the labour market and slash fiscal support, amplifying trade and asset price turmoil. Trump seeks to stabilise debt and avoid a fiscal crisis to benefit taxpayers and private growth, but critics warn the rapid pace may shock the economy. Markets face pressure, forcing the Fed to choose between fighting tariff-driven inflation or a growth slump, with history favouring the latter as asset drops threaten banks and deepen recession risks. Risk-off sentiment is set to persist.
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