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The Citizen
a day ago
- Business
- The Citizen
Weekly economic wrap: local data good for local GDP
Although this week's economic data looked good for GDP, there is a pervasive sense of waiting for the US tariff that affected unemployment. It was a busy week on the economic data front with most of the local data looking good for the second quarter South African gross domestic product (GDP). South Africa also submitted a new proposal for the US tariff ,which will hopefully see the 30% reduced. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the batch of June high-frequency data was generally positive for GDP. She notes that while June retail sales slowed after a very strong April and May, the full quarter was solid and, as such, also bodes well for consumer spending in the second quarter. 'In addition, the quarterly improvements in mining and manufacturing production are welcome after both sectors contracted in the first quarter. Conversely, wholesale declined and the labour force survey showed an uptick in the unemployment rate, with little job growth outside of the trade sector.' De Schepper says there was also plenty to digest on the international data front with the biggest release being the US inflation data. 'After a softer-than-expected consumer inflation print, markets fully priced in a 25 basis points rate cut by the Federal Reserve in September, with some talk of a potentially bigger cut. However, a surge in wholesale inflation (PPI) provided a sense check to this narrative.' ALSO READ: 12 companies close, 4 000 jobs lost as US tariffs and sales slump bite automotive industry Everyone waiting for the outcome of the Trump/Putin talks on Ukraine Bianca Botes, director at Citadel Global, points out that oil markets have been treading water, with Brent slipping back under $67/barrel after a short-lived bounce, as traders wait to see whether the Alaska meeting between the US and Russian presidents can deliver tangible progress on Ukraine. 'Washington warned of sharper sanctions on Russian crude buyers if talks fail, keeping geopolitical risk priced in. At the same time, signs of stronger demand from Japan and the prospect of US monetary easing are acting as a counterweight to the OPEC+ (Organization of the Petroleum Exporting Countries and other oil-producing countries) supply expectations and demand-growth concerns. 'Gold has been losing ground, heading for its worst week since late June. However, it is marginally in the green this morning. The hotter US inflation print of 2.7% has shifted rate-cut forecasts toward a slower pace, dulling bullion's appeal in the near term.' Botes says the rand has pulled back to around R17.60/$, giving up its earlier strength as gold prices slipped and the greenback regained some lost ground. 'Domestic sentiment remains cautious, with stronger manufacturing output offset by weaker employment and unease over the long-term cost of US trade measures.' The rand was trading at R17.58/$ on Friday afternoon. ALSO READ: Unemployment could get even worse in third quarter due to US tariffs Unemployment increases again in the second quarter According to Statistics SA's Quarterly Labour Force Survey, the unemployment rate increased to 33.2% in the second quarter, up from 32.9% in the first quarter. Damian Maart, economist at the Bureau for Economic Research, says the number of people classified as not economically active due to discouragement declined by 0.8% (28 000), while those not economically active due to other reasons remained the same between the two quarters. 'This decline pushed the expanded unemployment rate down by a modest 0.2% to 42.9% in the second quarter, which remains worryingly high.' Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, noted that overall, job creation remained low as companies sit with excess capacity amid weak demand and uncertainty regarding US trade policies affecting South Africa. Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the increase in the unemployment rate, combined with the ongoing moderation in the absorption rate, underscores persistent vulnerabilities in the labour market and the economy's limited capacity to generate much-needed jobs. They point out that the economy managed to recover 2 272 053 of the jobs lost in the first half of the pandemic year (2020) and the 659 566 jobs lost in the third quarter of 2021 after the July 2021 social unrest. 'However, formal non-agricultural employment diverged from its pre-pandemic trajectory, a sign of the economy's weakened structural health and diminished ability to achieve the job creation ambitions of the National Development Plan (NDP).' ALSO READ: Business confidence increases, but will come under pressure from US tariff Retail sales growth fell short Retail sales growth slowed notably but is still positive on a quarterly basis. It was under market expectations of 3.3%, posting a 1.6% increase in June compared to 4.3% in May. Wholesale trade sales, on the other hand, contracted at a slower pace of 1.7% in June compared to a 3.7% decline in May. Maart says this marked the slowest rate of contraction in the past three months. Motor trade sales grew at a slower annual rate of 3.1% in June, down from 4.1% in May. Sales were flat monthly and quarterly growth was marginal at 0.6%. Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say despite the loss in momentum, this print suggests that the retail industry grew by 0.9% in the second quarter, affirming their view of a recovery in GDP growth in the second quarter. Nkonki and Matshego expect the upward momentum in retail sales to continue, supported by rising real incomes, subdued inflation, continued withdrawals of contractual savings, and lower debt servicing costs compared to a year ago. ALSO READ: Mining production improves, but challenges loom Manufacturing and mining production surprised to the upside Manufacturing production grew by 1.5% compared to the first quarter, which saw a 1.9% decline. On an annual basis, manufacturing production growth also surprised to the upside, exceeding market expectations of 0.8% by rising to 1.9% in June, Maart says. Like factory output, mining production outperformed expectations, showing a notable improvement with an increase of 2.4%, in its second month of growth. The biggest boost to the annual performance came from platinum-group metals. Maart says overall mining production is set to make a positive contribution to GDP growth in the second quarter, recording a 3.9% increase compared to the previous quarter. Nkonki and Matshego say the outlook for both sectors remain murky. 'The 30% US tariff will directly affect manufacturing production as US demand for South African products decline, but the cyclical upturn in domestic demand should help to soften the blow. 'Given that most mining products are exempt of US tariffs, this sector will be affected indirectly as US trade policies place downward pressure on global growth and commodity prices.' Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the full manufacturing and mining data suggests that the sector contributed positively to GDP growth in the second quarter, based on the 1.6% quarterly growth.
The Citizen
23-05-2025
- Business
- The Citizen
Weekly economic wrap: Rand stable around Budget 3.0 and US visit
The US president's attempt at a showdown in the White House did not have much of an impact on the rand, while gold shines again. It was a busy week for South Africa on the economic front, with the finance minister at last delivering a budget that all parties in the government of national unity are happy with, followed shortly after by President Cyril Ramaphosa's visit to President Donald Trump at the White House. Through all this, the rand kept its composure and remained stable. Lisette Ijssel de Schepper, chief economist at the Bureau for Economic Research (BER), says it is rare that the presentation of the national budget would not be the week's main story. 'This week, the focus was on the meeting between Ramaphosa and Trump. It was a high-stakes meeting because so many things could have gone wrong. 'It is, of course, remarkable that the White House blasting 'Kill the Boer' footage with all members of the US and SA delegations present is not the worst thing that could have happened. But the meeting ended on cordial terms, and the South African delegation sounded positive after the closed-door session following the media event.' ALSO READ: Budget 3.0 was not a chainsaw budget, economists say Budget 3.0's sobering reality check She says Budget 3.0 was a sobering reality check on South Africa's macro and fiscal position, as National Treasury's growth and revenue outlook were revised down in line with the deterioration in global and domestic economic conditions. 'Treasury was forced to slash the massive shopping list it presented in February into something far more manageable. Net new expenditure for 2025/2026 has been halved from R142 billion in March to R74.4 billion. 'In addition, Treasury warned that it will impose R20 billion in additional tax measures in 2026 unless it is able to achieve the requisite savings through the expenditure review process and/or Sars is able to turn its R2 billion additional allocation for 2025/2026 into R20 billion of additional revenue by February next year.' De Schepper says that to add to the fiscal risks, Transport Minister Barbara Creecy approved a R51 billion guarantee facility for Transnet to support capital investment, implement required reforms, and ensure that it can meet its debt obligations. This comes on top of the R47 billion support facility granted to Transnet at the end of 2023. ALSO READ: Bitcoin hits record high, surpasses R2 million Rand stays stable in all the noise around US visit and Budget 3.0 De Schepper points out that the rand exchange rate remained remarkably strong throughout the week, although it was against a weak US dollar and was still trading below R18/$ today. Bianca Botes, director at Citadel Global, also noted the rand's steady hand on the same day as the diplomatic fireworks and Budget 3.0. 'Despite the significance of both the budget and the US meeting, the rand remained remarkably stable. Investors appeared reassured by government's commitment to fiscal discipline and largely ignored the diplomatic drama taking place in Washington, DC. The buckling greenback, of course, also provided the rand with a supportive hand. 'The rand held firm near a five-month high against the dollar, benefitting from a depressed greenback as markets reacted positively to the prospect of new trade talks with the US and ongoing speculation about changes to South Africa's inflation-targeting regime, despite a weaker economic growth outlook and slightly higher inflation. The rand has also strengthened against the euro and the pound.' ALSO READ: Godongwana cuts government spending to offset VAT shortfall Gold gained, while oil jumped Botes points out that gold prices hovered near $3 300 per ounce, recovering from earlier losses and are set for a weekly gain. 'Investors are turning to gold yet again as a safe haven asset amid worries about US fiscal policy, especially after a major tax-and-spending bill was passed and Moody's downgraded the US credit rating. 'Gold is an attractive asset for investors because it is a good diversifier of portfolios as it protects against inflation and its value is resilient during volatile and uncertain economic times. A weaker US dollar has further supported gold, making it more attractive to buyers worldwide. Ongoing geopolitical tensions have added to gold's appeal as a refuge in uncertain times.' She says Brent Crude oil prices dropped toward $64/barrel, heading for their first weekly decline in three weeks, mainly due to expectations that the expanded Organisation of the Petroleum Exporting Countries, OPEC+, which is a coalition of major oil-producing nations, might approve another increase in oil production at their upcoming meeting. 'Geopolitical risks are also influencing energy markets. Reports suggest Israel is preparing for possible strikes on Iranian nuclear facilities if US-Iran nuclear talks fail, raising fears of regional supply disruptions. However, these concerns have so far been outweighed by the prospect of increased oil supply and rising stockpiles.' De Schepper says the oil price jumped a bit midweek on reports that Israel was preparing to strike Iran's nuclear facilities. 'However, reports that OPEC+ could announce another sizeable increase in oil output following their meeting on 1 June pushed futures lower. 'A slightly lower oil price and a relatively stronger rand mean that local motorists should be somewhat shielded from Budget 3.0's fuel levy increase that will kick in next month.' ALSO READ: Inflation for April only 2.8%: Is a repo rate cut coming next week? Inflation edged up slightly in April due to higher food prices Headline consumer price inflation increased marginally to 2.8% in April from 2.7% in March. Tshepiso Maroga, economist at the BER, says after a string of downward surprises, this was the first overshoot relative to the consensus forecast, but in line with the BER's forecast. Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the slight increase in inflation exceeded their and the market's expectations. 'This increase was primarily driven by higher food prices, which continued their upward trend from a low base, along with contributions from housing and utilities. These factors overshadowed steeper declines in fuel prices.' Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say although core inflation remains benign, they still foresee muted inflation over the remainder of the year. 'Despite a rising trend into the second half of 2025, inflation should remain below the target midpoint, supported by soft oil prices, a recovery in the rand's value and weak economic activity. Headline inflation should average around 3.5% this year, down from 4.4% last year.' ALSO READ: Retailer confidence declined. Here's why Retail sales slowed again in March Consumer spending slowed sharply in the first quarter of 2025, with retail sales increasing by only 1.5% in March, down from 4.1% in February (revised up from 3.9%). On a monthly basis, sales volumes dipped by 0.2% in March, following a steeper 1.2% drop in February. Overall, retail activity grew just 0.1% in the first quarter compared to the fourth quarter of 2024, a significant slowdown from the 2.0% growth in the final quarter of 2024. Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say this suggests that household spending is losing momentum, which could weigh on broader economic growth. 'Despite the March slowdown, retail sales for the first quarter were up 4.1% compared to a year ago, the strongest start to a year since 2018. 'This reflects improved household finances, supported by lower inflation and reduced borrowing costs. However, the sharp deceleration in March points to growing consumer caution, likely due to fading support from once-off large-scale two-pot pension withdrawals, as well as rising uncertainty both at home and abroad. 'Looking ahead, consumer spending is still expected to drive growth in 2025, but at a slower pace than previously forecast. The outlook is clouded by global trade tensions, local political uncertainty and weaker local growth, which may weigh on employment.' Matshego and Nkonki point out that the key drivers of the March increase were pharmaceuticals and medical goods, cosmetics and toiletries and textiles, clothing, footwear and leather goods. 'Looking ahead, retail sales are expected to strengthen in the coming quarters. 'This improvement will be supported by rising real incomes, subdued inflation, continued withdrawals of contractual savings and lower debt servicing costs compared to a year ago.'
