Latest news with #Jee-AvanderLinde
The Citizen
23-07-2025
- Business
- The Citizen
Inflation still low enough for repo rate cut, but only in September
The inflation rate was 3% in June, with food prices the main contributor to the increase. The inflation rate only increased by 0.2% in June to 3%, but while this is low enough to support a repo rate cut when the Monetary Policy Committee of the Reserve Bank sits next week, economists think the repo rate will only be cut in September. Jee-A van der Linde, senior economist at Oxford Economics Africa, says the uptick in South Africa's inflation rate aligns with their view that prices are increasing steadily. 'Even so, the headline rate is forecast to average 3.4% this year, contained below the 4.5% inflation target. 'The increase in headline inflation to 3.0% in June was in line with our forecast. This means that South Africa's inflation rate averaged 3.0% during the first half of 2025. Meanwhile, the CPI index rose by 0.3% compared to the 0.2% increase recorded during May.' Core price inflation dipped to 2.9% in June from 3.0% in May. The latest data also shows that goods inflation increased to 2.3% in June, while annual services inflation rose to 3.7% from 3.6% in May. ALSO READ: SA inflation expectation lowest in three years Main contributors to June inflation The main contributors to the June inflation print were housing and utilities (+4.4%), food and non-alcoholic beverages (+5.1%) and alcoholic beverages and tobacco (+4.4%). Meat prices (+6.6%), especially beef, continued to sizzle in June as a result of the foot-and-mouth disease outbreak. Fuel prices were 11.2% cheaper than in June last year. However, Van der Linde points out, fuel costs recorded a sharp increase in July, which will place additional pressure on overall prices in the second half of the year. 'Fuel price data from the Central Energy Fund (CEF) indicates that petrol prices are set to tick lower in August, while diesel costs should rise further. The overall inflation rate is estimated to quicken to 3.5% in July, reflecting the impact of 2025 municipal rate increases.' Van der Linde says the latest data print does not alter their inflation outlook. 'We forecast inflation will average 3.4% in 2025 compared to 4.4% in 2024. Although headline inflation will drift higher throughout the second half of 2025 due to base effects, the overall outlook remains benign. 'We forecast a 25 basis points repo rate cut in the third quarter, followed by another incremental cut in the first quarter of 2026. This implies that the South African Reserve Bank (Sarb) will likely hold rates steady during next week's meeting and lower interest rates in September.' ALSO READ: Surprise that all MPC members were in favour of repo rate cut FNB: inflation at 3.6% in July, repo rate cut in September Koketso Mano, senior economist at FNB, says with an update of today's data, they see headline inflation increasing to 3.6% for July, with monthly inflation of 1.0% which will reflect higher utility costs. 'In addition, there should be monthly pressure on food prices that will not be mitigated by fuel price deflation, as in the past few months. 'Instead, fuel costs will also add upward pressure to monthly headline inflation. Positive base effects will also fade, assisting the lift in inflation over the coming months. However, headline inflation should remain contained around the midpoint of the target range. 'Soft inflation will be supported by weak oil prices, a stronger rand and a slow recovery in economic activity. We forecast headline inflation to average 3.5% this year.' Mano points out that contained inflation expectations are good for the Sarb to continue its cutting cycle. 'We think there is space for one more 25 basis point cut in this cycle before rising inflation holds monetary policy steady. 'We currently predict that the cut will be in September, given a contentious trade environment that could weigh on sentiment, the cost of borrowing and the rand. However, the dollar's weakness as well as terms of trade gains from higher precious metal prices supported a stronger rand and this could neutralise the fears of the Monetary Policy Committee (MPC) surrounding global dynamics, choosing instead to focus on a benign local environment. 'Therefore, we could see an earlier cut which would come through in the July meeting next week.' ALSO READ: Inflation stays low but expected to increase over coming months Possible repo rate cut next week Busisiwe Nkonki and Johannes (Matimba) Khosa, economists at the Nedbank Group Economic Unit, forecast inflation to still trend higher during the second half of the year, mainly driven by food and fuel prices. 'Food prices will continue to normalise off a low base, although the upward pressure will be partly contained by favourable weather conditions, which boosted this season's harvests. However, the foot-and-mouth disease outbreak in some provinces will likely increase meat prices as shortages intensify in the coming months. 'The price of Brent crude increased in the past month due to concerns that the conflict in the Middle East would disrupt supply chains. However, the oil price since moderated to around $70 a barrel and a resilient rand offset the effect of the short-lived increase to $80. 'These two factors (rand and oil prices) remain the biggest concerns for the inflation outlook, due to the volatile geopolitical developments and the uncertain global economic environment. Despite the expected rise in the coming months, inflation will remain relatively subdued, averaging around 3.5% in 2025.' Nkonki and Khosa say they believe that factors such as the benign inflation outlook and muted domestic demand, will convince the MPC to cut interest rates by 25 basis points next week. 'However, the MPC's decision will also be influenced by the US Fed's decision in the same week. Therefore, there is a chance that the MPC could delay the cut to September.'
The Citizen
16-07-2025
- Business
- The Citizen
Retail sales: South Africans spent R19.6 billion on clothes and furniture in May
Consumers spend R87.5 billion on retail sales since the beginning of 2025 and mostly paid for their shopping with credit. South African consumers spent a whopping R19.6 billion in May on clothes and furniture, although momentum in the retail sector seems to be slowing. According to the retail trade sales numbers issued by Statistics SA today, retail trade sales, measured in real terms (constant 2019 prices), increased by 4.2% in May compared to May 2024. The largest positive contributors to this increase were retailers in textiles, clothing, footwear and leather goods (12.5%) and general dealers (3.6%). Seasonally adjusted retail trade sales increased by 0.1% in May compared to April after month-on-month changes of 1.1% in April and -0.3% in March. Retail trade sales increased by 3.5% in the three months ended May 2025 compared to the three months ended May 2024. ALSO READ: How Shoprite made R20 million profit per day But retail sales were flat for past three months The largest positive contributors to this increase were again retailers in textiles, clothing, footwear and leather goods (9.5%) and general dealers (2.8%). Seasonally adjusted retail trade sales were flat in the three months ended May 2025 compared to the previous three months. The largest negative contributors were retailers in food, beverages and tobacco in specialised stores (-2.2%) and textiles, clothing, footwear and leather goods (-0.4%). The largest positive contributors were all 'other' retailers (1.4%), retailers in hardware, paint and glass (0.7%) and general dealers (0.2%). This chart shows that consumer demand has strengthened since early 2024, thanks to lower interest rates and favourable inflation: ALSO READ: Index reveals consumers are willing to spend money, but not too much No surprises in retail sales for May Jee-A van der Linde, senior economist at Oxford Economics Africa, says there were no surprises in the retail sales numbers for May. 'South Africa's retail trade sales growth moderated in May in line with our expectations. 'We predict private consumption growth to remain a key driver of overall economic growth this year, underpinned by easier monetary policy and low inflation.' Van der Linde points out that momentum in the retail sector seems to be slowing, with sales of 4.2% in May compared to a year ago after the 7.0% recorded at the start of 2025. 'Although we expect consumption growth to moderate over the coming quarters, households will remain a key driver of overall economic growth this year, underpinned by easier monetary policy and low inflation. 'We forecast a 25 basis points interest rate cut in the third quarter, followed by another incremental cut in the first quarter of 2026. Meanwhile, consumer confidence recovered during the second quarter, with middle- and high-income households – the most sensitive to interest rate changes – posting the strongest quarterly improvements. 'This latest data release aligns with our view of subdued economic activity in the second quarter, and we continue to forecast real GDP growth of 0.8% this year.'
The Citizen
01-07-2025
- Business
- The Citizen
Absa PMI increases but in contractionary territory for eighth consecutive month
The PMI shows that South Africa's manufacturing sector can just not succeed in getting the numbers to make the economy grow. The Absa PMI increased in June by 5.4 points to 48.5, but the headline PMI remained in contractionary territory for the eighth consecutive month, although it is encouraging to note that the current level is the second highest in 2025 after the 48.7 points in March. The 5.4-point increase is also the highest increase since the 9-point jump between August and September last year. The Absa Purchasing Managers' Index (PMI) is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa. On the positive side, new sales orders increased by 7.8 points to 46.1 in June, signalling some recovery in demand according to the BER. While export sales recovered somewhat in June compared to May, volumes remain near the lowest levels seen this year. The BER says this suggests that domestic demand boosted the large recovery in total new sales orders. However, the improvement in demand failed to boost production as the business activity index decreased by 1.5 points to 41.9 points in June. ALSO READ: Manufacturing PMI for April shows deteriorating SA economy Supplier deliveries and employment in Absa PMI increased The supplier deliveries index increased by 6 points to 55.1 in June. The BER says this indicates that the delivery times were extended due to some delays, possibly due to the uptick in orders and suppliers becoming busier, as respondents did not mention any significant supply bottlenecks. The employment index increased by 9.7 points in June, reaching 49.7 points, the highest since March 2024. The BER says this is a big jump for this index, but it needs to be sustained for some months before we can be confident that the manufacturing sector is adding jobs at a significant pace. The purchasing price index continued its downward trajectory, decreasing by 2.3 points to 58.1 in June. The BER points out that despite some volatility, the rand was on average 40c stronger to the dollar in June than in May and stayed below R18/$ for a large part of the month. On average, the Brent crude oil price was higher in June than in May, but the decline in diesel prices at the start of June likely helped. The index tracking expected business conditions in six months' time was unchanged at 62.5 points in June, after a significant 13.9 points increase in May. The BER says the apparent end to the 12-day war between Israel and Iran may have helped ease nerves, with no further news on the global tariff front. ALSO READ: PMI down slightly with concerns about global trade uncertainty Manufacturing activity remains weak Jee-A van der Linde, senior economist at Oxford Economics Africa, says despite the fact that South Africa's manufacturing PMI recovered partially in June driven by a mild improvement in demand, overall manufacturing activity remains weak, with the second-quarter PMI average lower on a quarterly basis at 45.4, below the previous quarter's 46.2. He says this suggests that a quarterly contraction in the manufacturing sector is also likely for the second quarter. Van der Linde also points out that despite the increase in the new sales orders index, his improvement failed to boost production as the business activity index declined and although the employment index increased strongly, it remains to be seen whether this momentum can be sustained and translate into sustainable job creation. This chart shows that the second quarter average of 45.4 is lower than the 46.2 average at the start of 2025: PMI must make up for poor performance in first quarter in second quarter He says, after a poor performance in the first quarter, the manufacturing sector must make up considerable ground in the second quarter. 'Although actual production increased by 1.9% compared to April, factory output levels were still 6.3% lower than last year, with the May manufacturing PMI number indicating activity remained sluggish due to muted demand. 'When factoring in the June PMI numbers, it is evident that the second-quarter average is lower than the preceding three-month period. This aligns with our overall view for the South African economy, which is that general activity is unlikely to have improved from the start of the year.' ALSO READ: SA business activity runs out of steam at end of 2024, but not all bad — PMI This table shows that despite a broad improvement in June, the PMI remains stuck in contractionary territory: Source: BER
The Citizen
18-06-2025
- Business
- The Citizen
Inflation unchanged in May at 2.8% as economists expected
While the inflation rate remained under the bottom band of the Reserve Bank's inflation target, it is not expected to stay there. The inflation rate remained unchanged in May at 2.8% as economists expected, but geopolitical risks could see it drift higher than expected in the months ahead. Statistics South Africa (Statistics SA) announced on Wednesday morning that the inflation rate remained the same as in April, with food prices being the only category that pushed inflation up in May by 0.2% compared to April. Jee-A van der Linde, senior economist at Oxford Economics Africa, says the outcome was in line with their expectations, and they continue to see a mild increase in price inflation heading into the second half of 2025. The main contributors to the inflation rate in May were housing and utilities, which increased by 4.5% and contributed 1.0 percentage point, food and non-alcoholic beverages, which increased by 4.8% and contributed 0.9 percentage point and alcoholic beverages and tobacco, which increased by 4.3% and contributed 0.2 percentage point. Statistics SA noted that higher meat prices (+4.4%) were a key driver of prices, with the biggest monthly increase recorded for beef products. Van der Linde points out that South Africa is in the grip of a widespread outbreak of foot-and-mouth disease, which intensified in June and will have an impact on domestic food prices going forward. ALSO READ: Inflation steady in May but food prices still increased Fuel levy offset lower fuel prices in May, keeping inflation at 2.8% 'Elsewhere, the latest data shows that domestic fuel prices declined further in June, but this is likely to be offset by the simultaneous increase in general fuel levies this month. Mid-month fuel prices data from the Central Energy Fund (CEF) indicates that petrol and diesel are likely to cost more in July after the latest upsurge in international oil prices.' He also notes that international oil prices rallied after Israel's strikes on Iran, with Brent Crude Oil prices briefly hitting $80.0 per barrel before settling around $74 per barrel. 'Due to the flare-up in tensions in the Middle East, we now forecast Brent Crude Oil prices to average $67.8 per barrel in 2025, slightly higher than our previous estimate of $67.3 per barrel. 'While oil supply remains unaffected, further escalation could see Iran close the Strait of Hormuz, cutting off around 20% of global supply and potentially driving prices to $120 per barrel. At that point, oil prices would be near the levels recorded when Russia invaded Ukraine and domestic fuel prices shot up to record levels.' However, Van der Linde says the latest inflation data does not alter their updated inflation outlook, and they still forecast inflation will average 3.4% in 2025 compared to 4.4% in 2024. 'Although headline inflation will drift higher throughout the second half of the year due to base effects, the overall outlook remains benign and unchanged from our earlier views, although several risks have emerged recently that could lead to prices increasing faster.' ALSO READ: What Israel–Iran conflict means for South African economy Risks to inflation outlook worsened over past few days Busisiwe Nkonki and Johannes (Matimba) Khosa, economists at the Nedbank Group Economic Unit, also expect inflation to drift upwards in the second half of the year, but still average a muted 3.5% in 2025. However, they say, risks to the inflation outlook have worsened in recent days as the rand weakened, and global oil prices jumped due to the conflict in the Middle East. 'Food prices will increase as the base continues to normalise. However, favourable crop prices resulting from good rainfall, as well as increased livestock slaughtering, will contain the upside. The biggest concern is the rand. 'While the domestic currency has been resilient in recent weeks, it remains vulnerable to unfavourable global economic and geopolitical developments. 'The Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) will have to weigh the benign inflation outlook against the potential upside risks emanating from the highly volatile and uncertain global environment. At this stage, we still see room for the Sarb to cut further in July.'
The Citizen
03-06-2025
- Business
- The Citizen
No fireworks expected, but GDP figures are disappointing — economists
Despite high hopes for improved GDP in 2025, the picture of the first quarter GDP does not offer much hope for economic growth. Economists expected no fireworks from the GDP figures for the first quarter of the year, but they all agree that the growth of 0.1% is disappointing. They even wonder if expecting economic growth of 1% is already a stretch, as the economy was drifting from slow growth to virtually no growth. Jee-A van der Linde, senior economist at Oxford Economics Africa, says the South African economy continued to trend sideways at the start of 2025. 'The latest data print does not fundamentally alter our view of gradual economic growth in 2025, but we acknowledge increasing downside risk to our forecast. 'Unless there is a stronger pickup in economic growth during the rest of this year, 1% real gross domestic product (GDP) growth for 2025 seems like a stretch at this point. The moderation in household consumption was broadly in line with our expectations, with the recent interest rate cut not expected to provide a meaningful boost in the second quarter. 'In addition, the lacklustre investment performance reflects South Africa's incoherent policies. Considering the uncertainty stemming from domestic politics and US tariffs during the second quarter, we anticipate private sector investment will remain depressed in the near term.' Van der Linde points out that the impact of US tariffs will start to reflect in the data for the second quarter, with exports likely to show strain heading into the second half of 2025. 'These circumstances make it challenging for businesses to ramp up investment and expand their operations. The next quarter's GDP figures are unlikely to look much better.' ALSO READ: GDP grew marginally in first quarter – agriculture helped keep economy afloat Disappointing GDP, although higher than market expectations Maarten Ackerman, chief economist and advisory partner at Citadel, also views the GDP growth as disappointing, although it outperformed market expectations of a 0.1% contraction. However, he says the marginal improvement is 'nothing to celebrate', as the economy remains stuck in a protracted low-growth cycle. 'This print brings the full-year growth to just 0.8%, still well below 1% and less than half the rate of the population growth. This confirms that South Africa continues to experience a per capita recession.' He points out that agriculture remained the standout performer, growing nearly 16% in the first quarter, following 17% growth in the previous quarter. 'Despite being a small sector, agriculture is one of the fastest-growing industries and critical for job creation. Its resilience is noteworthy given the ongoing political, logistical and climate-related challenges.' With household consumption increasing by only 0.4%, Ackerman says it is a slowdown from the previous quarter, which benefited from withdrawals linked to the two-pot retirement system. He notes that while the recent interest rate cut may support consumer spending, it is concerning that consumption remains the economy's only reliable growth driver. 'This latest GDP figure paints a familiar picture: a few resilient sectors keeping the economy afloat, while structural underperformance holds us back. Without meaningful and coordinated reform, the economy will continue to limp along, unable to meaningfully reduce unemployment or address pressing social challenges.' ALSO READ: Outlook for first quarter GDP not great – economy probably contracted Low inflation and repo rate cuts should support household spending Thanda Sithole, senior economist at FNB, says today's GDP figure is in line with their 1.3% growth forecast for 2025. 'While high-frequency indicators for 2Q25 were mixed, with new vehicle sales still showing robust growth, manufacturing PMI continues to disappoint, remaining in contractionary territory for the seventh consecutive month. 'This suggests ongoing pressure on the manufacturing sector, which carries significant weight in the economy and is likely to continue weighing on near-term growth. Business confidence survey results for the second quarter will be released later this week and should provide a clearer indication of how firms view current operating conditions.' She points out that business confidence is crucial for fixed investment, growth and employment. 'Encouragingly, inflation remains benign and the South African Reserve Bank (Sarb) reduced the restrictiveness of monetary policy by a cumulative 100 basis points from the peak of the latest hiking cycle. 'This, together with continued growth-oriented reforms under the Government of National Unity (GNU), should support growth over the medium term.' ALSO READ: Experts say no way SA can achieve economic growth of 3% this year GDP shows economy grew slower than in the fourth quarter Crystal Huntley, Johannes (Matimba) Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the 0.1% GDP growth was slightly better than their and the market's forecasts of no growth. 'Compared to the same quarter a year ago, the economy grew by 0.5%, slower than in the fourth quarter of 2024. We did not expect fireworks, but today's numbers are disappointing. Statistics SA also lowered the 2024 estimate slightly. 'Despite the lower base and patchy picture of the first quarter, we still expect the economy to gain some upward traction in the quarters ahead. The boost will continue coming from consumer demand, which should accelerate as inflation remains subdued, and interest rates decline further, bolstering real incomes and lowering borrowing costs.' They say the upside will be capped by slower government spending due to fiscal constraints, patchy fixed investment and a weaker net trade position caused by fading global growth, subdued commodity prices and persistent policy uncertainties. 'We expect GDP to grow by 1% in 2025, only moderately better than 0.5% in 2024, and we forecast GDP growth of around 0.3% for the second quarter.' ALSO READ: Reserve Bank warns global trade tensions can cut GDP by 0.7% Weak economic growth evident before adverse global developments Professor Raymond Parsons, economist at the NWU Business School, said the disappointing GDP growth figure of 0.1% comes as no surprise, as it merely confirms several months of muted high-frequency economic data that pointed to this likely outcome. 'Although adverse global developments earlier this year also played a role, the weaker economic data was already apparent before then. This reality was already recently also presaged by several reduced growth forecasts for 2025, including by the National Treasury (1.9% to 1.4%) and the Sarb (1.7% to 1.2%). 'If present trends persist, the growth outlook for this year now seems likely to be only about 1%, possibly rising to about 1.5% in 2026. It is clear that the incipient economic recovery in South Africa is presently struggling to gain momentum and needs maximum support to strengthen the business cycle upturn.' ALSO READ: This is where we would be if SA sustained an economic growth rate of 4.5% At least GDP managed to avoid contraction Kristof Kruger, senior fixed income trader at Prescient Securities, says the GDP offered a mixed picture of economic performance. 'While the economy showed some resilience in the quarter-on-quarter figures, annual growth continues to slow down, reflecting ongoing structural challenges. 'On a more encouraging note, the GDP growth exceeded the market expectation of -0.1%. While the number is modest, it provides some relief, indicating that the economy managed to avoid contraction during the first quarter.' He says the overall growth trajectory for 2025 remains subdued and that South Africa's economic fundamentals continue to face several headwinds, including: Structural issues like energy shortages and high unemployment Global trade uncertainty and slow growth in key trading partners Domestic policy challenges and a lack of political cohesion within the government. 'The first-quarter GDP data for South Africa offers both hope and caution. The slight surprise in quarter-on-quarter growth shows that there is some resilience, but the continued slowdown in annual growth paints a more challenging economic picture.'
