Latest news with #NedbankGroupEconomicUnit
The Citizen
6 days ago
- Business
- The Citizen
Outlook for first quarter GDP not great
Economic data for the first quarter releases already seem to support the view that the economy did not grow, signalling bad news for GDP. The outlook for the first quarter GDP figures is not great, and economists say the economy probably contracted instead of growing. Crystal Huntley and Nicky Weimar, economists at the Nedbank Group Economic Unit, think that economic growth was likely stagnant during the first quarter. 'High-frequency statistics reflected stagnant economic activity over the first quarter.' 'Agriculture will probably be the star performer. In contrast, activity in mining, manufacturing, electricity, construction and trade relapsed, still held back by a difficult operating environment, aggravated by persistent inefficiencies in essential economic infrastructure and the stronger base in the first quarter.' They also do not expect that real gross domestic growth (GDP) is forecast to make any gains in the first quarter, slowing from 0.6% in the fourth quarter of 2024. 'Agriculture, transport and communications, finance, general government and personal services increased over the first quarter. However, while retail, motor trade sales and real income from accommodation and food services accelerated, wholesale sales fell, dampening the contribution from trade to overall GDP.' They point out that energy, mining and manufacturing contracted, driven by the return of load shedding, infrastructure failures and subdued domestic and global demand. ALSO READ: This is where we would be if SA sustained an economic growth rate of 4.5% Despite bad GDP outlook for first quarter, economy will grow in 2025 But it is not all doom and gloom, they say. 'We expect some acceleration in growth during the remainder of the year. The main boost will come from domestic demand, supported by firmer consumer confidence, sustained by a recovery in real household incomes driven by lower inflation and lower debt service costs due to lower interest rates. 'Despite minor progress on the structural front, operating conditions remain challenging and production costs high. The weaker global recovery will weigh on output, particularly given South Africa's elevated cost structures, underlying inefficiencies and significant infrastructure constraints. 'Accelerating structural reforms are the key to enhancing the international competitiveness of industries. This would enable the economy to grow faster and create more jobs without hitting supply bottlenecks, driving up costs and stoking inflation. 'Overall, we expect growth of 1% in 2025 and 1.5% on average over the next three years. However, the uncertain global environment and implicit collapse of the African Growth and Opportunity Act (Agoa) pose significant downside risks.' ALSO READ: Manufacturing PMI falls to lowest level since April 2020 — bad news for GDP Contraction of 0/1% expected for first quarter GDP Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say real GDP (not seasonally adjusted) grew by 0.9% compared to a year ago in the fourth quarter of 2024, up from 0.4% in the third quarter. 'On a seasonally adjusted (non-annualised) basis, the economy expanded by 0.6% in the fourth quarter, marking a modest rebound from a 0.1% contraction in the third quarter. Although there is uncertainty surrounding the notoriously volatile agricultural sector, and while it may perform relatively well, high-frequency data from other sectors suggest that the economy weakened in the first three months of this year compared to the last three months of 2024. 'We pencil in a quarterly GDP contraction of 0.1% (final estimate) for the first quarter, reflecting softer economic activity in higher-weighted sectors such as mining, manufacturing and trade.' ALSO READ: R466bn 'hit' as National Treasury lowers SA GDP forecast Medium-term outlook for GFP Over the medium-term, Huntley and Weimar expect the economy to recover in 2025. 'Our forecast is for growth of 1.0% for the year, averaging 1.5% over the next three years. South Africa's structural constraints remain pretty much the same, with only minor improvements from the previous year. 'Lower inflation and interest rates will provide impetus for demand. The outlook for agriculture is more promising for 2025. The La Niña rains boosted farmer sentiment. As of 30 April, the winter cereal planting intentions stood 1.1% higher than the production figures for 2024. 'Further optimism depends on better financial conditions for farmers given the lower interest rate environment, progress in controlling animal diseases and the hope that port improvements will continue.' They say this is reflected in the Agribiz confidence index, which improved by 11 percentage points from the fourth quarter to the first quarter. However, they say several structural and cyclical challenges remain. 'The livestock industry continues to grapple with animal diseases and elevated feed costs, while excessive rainfall in some regions raised concerns about crop quality, and while wine production is recovering, it remains below pre-pandemic levels. ALSO READ: Reserve Bank cuts repo rate thanks to lower inflation, stronger rand Downside risks for GDP 'Further downside risks emanating from the Trump administration's tariffs and the implicit end to Agoa, fractured geopolitics, port inefficiencies, poor rail and road infrastructure, crime, stock theft, worsening municipal service delivery, and ultimately, farm profitability. However, despite these headwinds, they forecast agriculture to grow by 10.3% in 2025 off last year's low base.' They also point out that after a relatively stable year, load shedding returned at the start of 2025, underscoring persistent vulnerabilities in the electricity system. 'Excess demand nearly doubled between 2020 and 2024, while Eskom's use of its compensatory load (including load interruptions, imports and open-cycle gas turbines) increased by 21%. 'Therefore, the reoccurrence of load shedding is unsurprising. Still, the situation has improved since the peak of the crisis in 2023. From 2023 to April 2025, excess demand dropped by 94%, manual load reduction by 95%, compensatory load usage by 65% and loadshedding by 94%.'
The Citizen
02-05-2025
- Business
- The Citizen
Weekly economic wrap: Rand stabilises while gold loses shine
The rand looked a lot better this week as China seems more likely to talk to the US about tariffs, but it cost gold a few dollars in price. It was a quiet week on the domestic economic front, with two public holidays and few data releases showing the South African economy's performance. The good news is that the rand was more stable this week, although gold lost a tiny bit of its shine after its record-highs of the previous week. Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the rand is benefiting from improved risk aversion as fears about the US-China trade war ease. China's commerce ministry was quoted as saying that trade talks with the US are imminent after the Trump administration expressed its readiness to start negotiations on tariffs. In South Africa, Finance Minister Enoch Godongwana announced that a revised budget for the current financial year and estimates for the Medium-Term Framework for the current and the next financial year will be tabled on 21 May. ALSO READ: Godongwana consents to court order against VAT increase Scrapping of VAT increase helped the rand Matshego and Nkonki say the announcement about scrapping the VAT rate increase to 15.5% from 15% has somewhat eased fears about the stability of the government of national unity (GNU), which helped the rand. The rand traded at R18.36/$ on Friday afternoon, firming from R18.59 on 30 April to its strongest level since 1 April. In the local equity market, the JSE Alsi is marginally higher despite a slump in basic materials, which was dragged lower primarily by the softer gold price. Gold was trading around 3,255.76 on Friday afternoon, its lowest level since 15 April, as global risk aversion eased. Platinum-group metal prices rebounded further, albeit marginally, the Nedbank economists noted. Brent crude oil fell to $62.21 a barrel, its lowest level since April 2021, after reports suggested that OPEC+ will announce further output expansion effective June. ALSO READ: Manufacturing PMI for April shows deteriorating SA economy Credit growth slowed in March Growth in private sector credit extension slowed further in March to 3.5% from 3.7% in February. Matshego and Nkonki say the moderation can be attributed to the bills and investments category, which contracted by 6.3%. Growth in loans and advances, which excludes bills and investments, increased to 4.3% from 3.9%, with credit in both the household and corporate sectors increasing. Household loans improved marginally to 2.9% from 2.7%, while growth in home loans was up slightly (2.3% from 2.1%) and overdrafts and personal loans continued to contract but at a softer pace. Instalment sales and leasing finance maintained its growth rate of 6.2%, while credit card usage eased to its lowest rate since January 2022, when it grew by 7.6%. Corporate credit growth increased to 5.6% from 5.1%, supported by a notable increment in overdrafts. ALSO READ: What does lowest inflation in 5 years mean for repo rate? Lower inflation and improved growth should bolster consumer confidence Overdrafts jumped to 10.3% from 4.9% in February, while commercial mortgages, instalment sales and leasing finance also edged higher. However, credit card usage by companies dropped noticeably to 2.5% from 11.1% and general loans slowed by a smaller margin, easing to 4.3% from 4.8%. Matshego and Nkonki say on the household front, lower inflation and improved growth and employment outlook should bolster consumer confidence, allow lenders to ease credit standards and therefore encourage growth in the coming months. 'For corporates, credit growth is set to remain modest amid spare capacity and heightened levels of uncertainty. However, conditions will likely recover more meaningfully later in the year as better growth outcomes boost confidence and bolster private-sector investment.' ALSO READ: Trump tariffs created unprecedented uncertainty — trade expert Trade balance: Exports expanding faster than imports According to Sars, the trade balance widened to a surplus of R24.8 billion in March from R20 billion in February, with exports leading the charge, increasing by 5.7% compared to February, although slower than the 9.8% in February, but still expanding faster than imports. The main positive contributors were machinery and electronics, which increased by 21%. Matshego and Nkonki say this suggests higher shipments to the US ahead of the Trump administration's reciprocal tariffs. Mineral products also added to the upside, up by 18%, while the unclassified goods subcategory made a surprising contribution, increasing by 467%. While a substantial increase, Matshego and Nkonki say the contribution to the headline figure is negligible, given that the category accounts for much less than 1% of the country's exports. The main export destinations during the month were China (10.2%), Germany (7.7%), the US (5.7%), Mozambique (5.6%) and India (5.3%). ALSO READ: Weekly economic wrap: Policy reversals and lowest inflation in 5 years Rebound in imports, but global trade tensions loom Imports rebounded by 3.2% in March after a 13.5% contraction in February. The recovery was driven by a 156% increase in animal and vegetable fats, with further support emanating from purchases of vehicles and transport equipment (28%), original equipment components (9%) and mineral products (7%). The main import destinations for the month were China (18.8%), India (7.9%), the US (7.2%), Germany (6.6%) and Thailand (3.7%). Over the year, exports recovered by 6.3% from 1.2%. In contrast, imports remained in contractionary territory for a second consecutive month. Matshego and Nkonki point out that the trade outlook has become increasingly uncertain due to ongoing global trade tensions. 'Imports may continue to increase as lower inflation and higher real incomes bolster import demand. The expected ongoing recovery in fixed investment will also provide an additional boost.' They note that the Trump administration delayed the tariffs imposed on most countries in late March for 90 days, providing some short-term relief for the US's trade partners, except China. However, Matshego and Nkonki say, South African exports will likely weaken this year given the gloomier global growth prospects, particularly from the country's key trade partners. 'The IMF expects global growth to moderate to 2.8% in 2025, down notably from the 3.3% estimated in the January World Economic Outlook Update.'
