Some relief for the ZAR, but risks remain

Key points

• This week’s local GDP and current account data surprised to the upside, led by a greater-than-expected current account surplus, a stronger trade balance and improved terms of trade in Q1. This reduces near-term external financing pressure and supports the ZAR and local assets. However, the improvement is not yet investment-led. Weak capital-goods imports, subdued fixed investment and soft productive-sector momentum suggest the current account surplus partly reflects weak domestic capital formation rather than a durable productivity upswing.
• Financial stability also remains strength, supportive, with well-capitalised and liquid banks reducing the risk of a systemic financial shock. However, tighter financial conditions, rising household and SME stress, and sovereign risk remain key vulnerabilities. The main concern is that high government borrowing and debt-service costs continue to absorb scarce savings, crowding out investment. For the ZAR, this leaves the outlook tactically constructive but structurally dependent on fiscal credibility and investment recovery.

 

BASELINE VIEW:

The baseline view for the ZAR is that resilience has improved due to positive economic data, but structural risks and global headwinds remain. A stronger current account, improved terms of trade in Q1 and SARB credibility provide near-term support, especially if favourable global risk conditions return. However, sustained appreciation requires stronger capital formation, lower fiscal risk and evidence of an investment-led growth recovery. For now, the ZAR will remain vulnerable to shifting risk appetite, with its resilience to be tested the longer the conflict drags on.

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