Summary of macro-economic research views:

  • Inflation: Inflation is expected to start declining convincingly in the coming months and may well re-enter the 3%-6% inflation target range by mid-year. By the end of the year, the headline inflation rate is expected to trend back towards the 4.5% target midpoint.
  • Repo rate: Following the last 50bp rate hike to take the repo rate to 7.75%, there is scope for one more 25bp rate hike, although this is far from guaranteed. The interest rate outlook has stabilised and the repo rate will likely peak at the next meeting. Much depends on what other major central banks do in the next few weeks, however.
  • Fiscal Policy: With much of Eskom’s debt rolling on the sovereign’s balance sheet, the debt/GDP ratio for the country is forecast to rise towards the 75% mark. Risks are tilted to the topside, however, with economic growth deteriorating and pressure to increase spending on public wages and social transfers remaining. The positive is that fiscal authorities maintain a strong resolve to right the course to a more sustainable trajectory. Still, the bond market will continue to price in a healthy discount to foreigners.
  • GDP Growth: Due to persistent load-shedding, private sector growth forecasts have been revised downwards and could even turn mildly negative for the year, depending on the severity of the load-shedding and the mitigation efforts by government. Risks are tilted to the downside, however, with a recession on the cards in H1.
  • Currency: According to ETM’s ZSI, valuations metrics, carry attractiveness and resilience, the balance of forces favours a ZAR recovery back towards 16.0000/$in the next nine months, with fair-value hovering closer to 16.50 at the moment. That is to say that the environment favours exporters at present.
  • Bonds: Bond are well positioned to gain strongly through the year as the interest rate cycle turns, the globe heads into a downturn and inflation reverses as the monetary stimulus that caused it, is withdrawn. Fund managers are exposed more to medium to longer-dated bonds, and expect bonds to outperform equities this year.
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