Inflation: Headline inflation slowed to 5.2% y/y in April from 5.3% y/y in March. The April outcome was slightly lower than consensus estimates of 5.3% y/y. Headline CPI slowed for the second consecutive month in April as food costs eased. Food inflation rose at a slower pace of 4.4% y/y in April compared to 4.9% y/y in March. The trend in pipeline pressures is to the downside and will ease the pressure on the SARB.

Repo rate: The SARB kept the repo rate unchanged at 8.25% for a 6th consecutive meeting in May. Its accompanying forward guidance was cautious and non-committal, leading the market to push out expectations of eventual rate cuts in SA. Since the elections and a comment by SARB Advisor Fowkes, expectations have shifted to favour rate cuts, one before the end of the year and another in H1 2025. A Government of National Unity with the ANC/DA/IFP could see rate-cut expectations brought forward.

Government Finances: The main budget balance swung into a -R78.0bn deficit in April from a +R2.1bn surplus in March, in line with consensus estimates. Notably, there was an explosion in the total borrowing requirement, which includes bond redemptions and Eskom debt relief. The total borrowing requirement was -R544.8bn in the 2023/24 fiscal year versus -R400.3bn in the 2022/23 fiscal year, which raises the spectre of severe fiscal risk.

GDP Growth: Real GDP for Q1 2024 decreased by -0.1% q/q, following an increase of +0.3% q/q in Q4 2023. Q1’s outcome broadly missed the consensus forecast of +0.1% q/q growth. This poor outcome highlights the effects of the many structural headwinds this economy faces. When adjusting for inflation, South Africa’s economy is slightly larger than in 2018, implying that economic growth has stagnated and is not keeping up with population growth.

Currency: Encouragingly, the ZAR has weathered the elections surprisingly well. With the elections behind us, which were declared free and fair, the stage is set for a coalition government with the ANC favouring a Government of National Unity (GNU). A responsible GNU would go a long way to reducing overall levels of risk aversion and help the ZAR extend its recovery. There was so much bad news priced in the ZAR that there is a lot of scope for a prolonged ZAR recovery that could spark the start of a multi-month virtuous cycle.

Offshore conditions: There are early signs that the US economy is starting to run into headwinds. Although the labour market data remains resilient, some other data point to a slowdown in momentum. Two major central banks, the BoC and the ECB cut rates last week, and the global economy remains on track to slow down towards the end of the year when, coincidentally, the Federal Reserve is looking to reduce interest rates. Another development worth noting was the sharp shift

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