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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
23-05-2025
- Business
- The Citizen
Repo rate: Will Reserve Bank cut or err on side of caution?
With inflation at 2.8% in April and the rand currently trading under the psychological divide of R18/$, will the Reserve Bank cut the repo rate? Although economists have been warning that the Reserve Bank will probably not cut the repo rate and rather leave it unchanged on Thursday, there have been calls for a cut after the inflation rate for April was again far below the bottom of the inflation target. Lisette Ijssel de Schepper, chief economist at the Bureau for Economic Research (BER), expects that there will surely be lively discussions among members of the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) and that it is unlikely to be a unanimous decision. 'While a strong case can be made for further easing as price pressure remains subdued with a relatively benign inflation outlook as the economy is under pressure, we believe the Sarb may again err on the side of caution and keep its rate unchanged. 'When thinking about Sarb decisions in recent months, we started to talk about what the Sarb is likely to do, but this is not always the same as what the Sarb could or even should do. Our decision would have been to cut a bit more aggressively at the start – but then hindsight is 20/20, of course.' She points out that the Reserve Bank of Australia (RBA) cut rates for a second time this year on Tuesday to a two-year low, despite warning about heightened global uncertainty. 'However, with inflation around target and risks seen as balanced, a cut was seen as appropriate, and there is a chance the Sarb agrees with respect to South Africa.' ALSO READ: Inflation for April only 2.8%: Is a repo rate cut coming next week? Nedbank economists: Sarb will leave repo rate unchanged Nicky Weimar and Johannes (Matimba) Khosa, economists at the Nedbank Group Economic Unit, think fear of the unknown will likely keep interest rates on hold. 'We expect the MPC to leave interest rates unchanged. However, it is a difficult one to call. 'MPC members were divided on the past two decisions. As we see it, the decision hinges on how much weight the MPC places on recent price dynamics compared to potential upside risks posed to the inflation outlook by a highly unpredictable global environment. 'If the focus falls on the underlying price dynamics, a strong case can be made for further rate cuts. Recent inflation outcomes have been benign. Inflation increased slightly to 2.8% in April but remained well below the Sarb's 4.5% target.' Weimar and Khosa say the upside risks also subsided since the last meeting in March where the MPC decided to keep the repo rate unchanged. They still see food prices increasing, but point out that a healthy summer harvest will partly contain the impact of higher global food prices. 'Our central forecast is for rates to remain unchanged for the rest of this year. However, if the US Fed cuts rates later this year, the MPC could easily follow without placing undue pressure on the rand. ALSO READ: What does lowest inflation in 5 years mean for repo rate? FNB economists: Sarb will leave repo rate unchanged Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say while the global environment has become less tense, they still believe that persistent policy uncertainty will continue to push monetary authorities to err on the side of caution. 'However, there is ample room for further easing given weak domestic fundamentals, so it will be interesting to see which way the MPC leans. We expect the MPC to keep interest rates unchanged. While we think more cuts will come in the second half of the year, a repo rate cut of 25 basis points, which is the consensus view, would not be too much of a surprise and would suggest that local fundamentals outweighed external headwinds. 'The other factor that could keep the MPC on hold is a shift to a lower inflation target. The immediate aim of restrictive policy would be to guide inflation expectations even lower and embed inflation that is currently at the bottom of the inflation target range.' ALSO READ: What lowering the inflation target will mean for SA Citadel economist: Surprise repo rate cut is unlikely based on previous decisions Maarten Ackerman, chief economist at Citadel, also believes that the Sarb is likely to hold the repo rate as caution remains the order of the day. 'The Sarb will maintain a cautious, wait-and-see approach amid ongoing global and domestic uncertainty, including risks stemming from US trade policy and the broader impact of tariffs. 'Although inflation is well-behaved and below the mid-point of the target range, the Sarb has consistently taken a cautious stance. They are monitoring the global landscape, especially risks tied to US inflation, interest rate differentials and rand volatility, before making any moves.' He notes that while other central banks, such as the European Central Bank (ECB) and Bank of England (BoE) have shown signs of easing, the Sarb is more focused on maintaining stability relative to the US dollar, to preserve the attractiveness of local assets and prevent further rand weakness. 'A surprise rate cut could lift consumer sentiment, but is unlikely given the Sarb's transparent communication and conservative track record. If they have not acted in previous windows of opportunity when inflation was low, it is unlikely that they will surprise now. 'In the face of market volatility, a clear and credible fiscal roadmap alongside monetary stability will be key to positioning South Africa for recovery and resilience in the months ahead.'
Reuters
25-04-2025
- Business
- Reuters
South Africa 2025 economic growth forecast cut to 1.5% on tariff worries
JOHANNESBURG, April 25 (Reuters) - South African economic growth will be a bit weaker this year than thought a month ago partly due to trade tensions, with U.S. President Donald Trump having paused a 31% tariff for 90 days imposed on imports from Africa's most industrialized nation. Economists polled by Reuters April 16-24 trimmed their forecasts by a median 0.2 percentage point to 1.5% for this year. Forecasts were in a 1.0%-2.1% range compared with 1.3%-2.3% in a March poll. But the forecast for 2026 was unchanged at 1.8%. The latest 2025 consensus from the survey of 25 economists was much more optimistic than the International Monetary Fund's latest view of 1.0%, cut from 1.5% in January. Nicky Weimar, chief economist at Nedbank, lowered her GDP forecast for 2025 to 1.1%, 0.3 percentage point lower than her previous view. She said that was based on expectations for higher global tariff barriers, although she expects them to be ultimately less extreme than what the White House proposed on April 2. "Another reason for our downward revision is that the production side of the economy fared poorly in Q1. So, even before the tariff chaos hit, local producers and exporters were struggling," said Weimar. South Africa currently benefits from the African Growth and Opportunity Act, U.S. legislation that gives preferential tariff-free access to its markets to some countries. But renewal of the legislation, which expires later this year, is unlikely, according to analysts. In better news for South Africans struggling with the cost of living, inflation fell for the first time in five months in March to its lowest since June 2020, due to a drop in fuel costs and softer price rises for tuition. Price pressures got a further reprieve on Thursday after the government scrapped plans to raise value-added tax following a political backlash that threatened the stability of its ruling coalition. The proposal to raise VAT by 1 percentage point over two years, intended to boost state revenue, met resistance as Africa's biggest economy grapples with sluggish growth and public discontent over rising living costs. Inflation is now expected to average 3.7% this year, lower than the 4.0% forecast in the previous poll. The 4.5% consensus for 2026 inflation, however, was unchanged. That near-term reprieve has reignited debate around more interest rate cuts from the South African Reserve Bank, which targets inflation between 3%-6%. Rates were held steady last month. South Africa's repo rate, currently 7.50%, is expected to hold steady in May, the survey found, with policymakers waiting until either July or September for the next cut to 7.25%. The SARB will then hold the repo rate steady for the remainder of the year, with another cut to 7.00% in early 2026, according to median forecasts. (Other stories from the April Reuters global economic poll)
