Summary of macro-economic research views

  • Inflation: The February CPI print reflected a larger-than-expected rise in the inflation rate, adding to signs that the broader disinflation trend has lost momentum. According to the SARB’s projections, headline inflation is only expected to reach the 4.5% midpoint of the SARB’s target range late in 2025. However, the SARB will likely begin cutting rates before then.
  • Repo Rate: The SARB kept the repo rate unchanged at 8.25% for a fifth consecutive meeting in March. Its accompanying forward guidance was decidedly cautious, leading the market to push out expectations of eventual rate cuts in SA. Current market positioning does not even have one full rate cut priced in for the year, although ETM’s view is that at least one 25bp rate cut will be implemented, with a potential second contingent on the ZAR’s post-election performance.
  • Government Finances: In its February budget, National Treasury kicked the can down the road, without any signs of a long-term turn-around strategy for SA’s fiscus. The use of the contingency reserves allowed Minister Godongwana to present an improved debt-to-GDP outlook, but this was dishonest as it relied on overly optimistic GDP growth estimates and failed to account for the debt of ailing SOEs that will eventually need to be taken onto the government’s balance sheet. In the absence of hard-hitting reforms, SA remains on an unsustainable fiscal trajectory, notwithstanding better-than-expected tax revenues in the fiscal year though March 2024.
  • GDP Growth: The South African economy avoided a technical recession at the back end of last year, with GDP growing 0.1% q/q in Q4. It is not growing fast enough to keep pace with population growth, meaning average living standards are deteriorating. There is also no obvious reason to expect that GDP growth will pick up meaningfully, especially since global growth is expected to slow down in the coming quarters.
  • Currency: Despite its recent advance, the ZAR continues to trade at a discount as investors prepare for the many risks and challenges that SA faces. Against the USD, EUR, and GBP, the balance of probabilities still favours exporters taking out forward currency, as the probability of beating the prevailing spot rates in 12 months’ time is high.
  • Offshore Conditions: Global growth is expected to slow as the year progresses. The US economy remains more resilient than most, but is also expected to come under increased pressure. The Fed and other major central banks are thus set to cut rates this year, but their cycles will likely start in H2, later than what the market previously predicted.