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The Citizen
3 days ago
- 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.'
The Citizen
4 days ago
- Business
- The Citizen
Manufacturing PMI falls to lowest level since April 2020 — bad news for GDP
The outlook for economic growth in South Africa is not great, and the new PMI and GDP data is not expected to be great either. Manufacturing PMI fell to its lowest level since the pandemic in May, signalling that the manufacturing sector remains under pressure after a poor start to 2025. This is not good news for the GDP statistics for the first quarter that will be announced on Tuesday, 3 June. 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. According to the BER, the seasonally adjusted PMI decreased by 1.6 points to 43.1 in May 2025 from 44.7 in April and 48.7 in March. Jee-A van der Linde, senior economist at Oxford Economics Africa, says the headline PMI remained in contractionary territory for a seventh consecutive month. 'This suggests that the manufacturing sector continued to suffer in May, despite some flickers of activity and demand improvement, albeit at extremely low levels. However, a decline in the supplier deliveries index pushed the headline PMI lower.' ALSO READ: Manufacturing PMI for April shows deteriorating SA economy Modest increase in business activity and sales orders The business activity and new sales orders indices rose modestly in May, likely driven by an uptick in domestic demand as export sales continued to deteriorate rapidly, he says. The survey findings were inconclusive on whether the decline in the inverted supplier deliveries index was due to easing logistical constraints or lower demand. Meanwhile, the employment index continued to decline, remaining in contractionary territory for 14 consecutive months. The index tracking expected business conditions in six months' time increased sharply to its highest level since the end of 2024. Van der Linde says the survey findings suggest that sentiment improved after global tariffs were suspended and businesses were hopeful that local political disagreements on policy within the government would be resolved. ALSO READ: PMI down slightly with concerns about global trade uncertainty How manufacturing slipped further in May This chart shows how manufacturing PMI slipped further in May, pressured by soft local and international demand: Source: BER ALSO READ: This is where we would be if SA sustained an economic growth rate of 4.5% PMI at lowest level since April 2020 Van der Linde says the headline PMI has fallen to its lowest level since April 2020, when it was 30.9, emphasising just how weak demand is for South African manufactured goods. 'The employment index has remained in contractionary territory for the past 14 months, as manufacturers continue to scale down production due to stagnant demand.' He says the manufacturing sector is expected to weigh on first-quarter real GDP growth, and that looks likely to be the case in the second quarter as well. 'First-quarter economic data releases have been weak, pointing to 0% growth in the first quarter of 2025 compared to the fourth quarter of 2024. A quarterly contraction cannot be ruled out. Our below-consensus real GDP growth forecast for 2025 remains at 1.0%.' This table shows the subcomponents of the Manufacturing PMI fared over the past three months: Source: BER
Daily Maverick
19-05-2025
- Business
- Daily Maverick
A R75bn question mark hangs like the sword of Damocles over Godongwana
It's important to note that both the domestic and global macroeconomic outlook have worsened since the withering of Budget 1.0 and Budget 2.0 on the political vines. The bottom line is that South Africa is running out of fiscal room. Over the medium term — meaning the next three years — there is a R75-billion question that Finance Minister Enoch Godongwana will need to answer on Wednesday, 21 May 2025, when he makes an unprecedented third attempt at tabling the Budget. With the proposed VAT hikes now off the table, there is a R75-billion shortfall forecast over the next three years that needs to somehow be plugged, and the fragile South African economy has few faucets that can still be tapped. That leaves just three options — tax hikes, spending cuts or increased borrowing. Among economists, there is consensus that there is virtually no more scope for hikes to income or corporate tax, though the fuel tax levy could be played with to siphon some more liquidity for the Treasury. What this means for you If you are a taxpayer, no relief is in sight but there should be little additional pain — in the short run. In the longer run, a failure to keep the debt-to-GDP ratio from surging above current levels is needed if you want tax relief down the road. Faster levels of economic growth are also critical to reduce your future tax burden and to create jobs. At the end of the day, the Budget is about your hard-earned money and how the government spends it. Beyond that, it comes down to belt tightening or the debt market. 'There will likely be spending cuts and increased borrowing,' Jee-A van der Linde, senior economist at Oxford Economics Africa, told Daily Maverick. Van der Linde pointed out that ratings agencies such as S&P — which last week affirmed South Africa's BB- credit rating with a positive outlook — forecast that the country's gross debt to gross domestic product (GDP) ratio will reach 80% this year. That is in sharp contrast to the Treasury's latest projection of the debt to GDP ratio peaking at 76.2% for 2025/26. 'If you look at what the ratings agencies expect, like S&P, of an 80% debt to GDP ratio and yet they maintain a positive outlook, that tells me that the Treasury may increase borrowing. It's already being priced in by the ratings agencies,' Van der Linde said. Still, South Africa can no longer borrow and spend like a drunken sailor. 'The National Treasury will have a hard time finding sustainable revenue sources in the current economic environment,' Van der Linde said. Spending That brings into sharp focus the need for a blade to cut spending. 'We think that the Minister of Finance could announce a spending review in the October 2025 Medium Term Budget Policy Statement. We have pencilled in a net increase in spending of R30.0-billion compared to R61.6-billion in Budget 2.0 in FY25/26, consisting of a combination of infrastructure and 'other',' Tertia Jacobs, Investec Treasury economist, said in a pre-Budget note. 'In contrast, new spending on the frontline could be tied to a spending review or reprioritisation of existing expenditures.' Jacobs also noted while 'some fiscal slippage is expected… this may not translate into an increase in bond supply due to higher available cash balances'. Jacobs flagged two developments since Budget 2.0 — an opening cash balance that is R20-billion higher, and an R80-billion surge in the value of the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account because of red-hot gold prices. Last year the Treasury announced it would draw down R150-billion from this source over the next three years, and it could conceivably be tapped again. The R75-billion shortfall has also been questioned by some. 'To preemptively justify expenditure cuts, National Treasury has deliberately exaggerated the revenue implications of removing the originally proposed VAT increase. A reversal of VAT implies a R2.7-billion gap in the current fiscal year and a R60-billion gap over the medium term, instead of the R75-billion widely quoted,' the Institute for Economic Justice (IEJ) said. To avoid an 'austerity budget', the institute suggests removing tax breaks linked to pensions and medical aid contributions for high-income earners, restoring the corporate income tax to 28% from 27%, and dipping back into the Reserve Bank's Gold and Foreign Exchange Contingency Reserve Account. Domestic and global macroeconomic outlooks have worsened It's also important to note that both the domestic and global macroeconomic outlooks have worsened since the withering of Budget 1.0 and Budget 2.0 on the political vines. The Treasury's rose-tinted forecast for economic growth of 1.9% this year is bound to be shaved. The International Monetary Fund (IMF) cut its 2025 forecast for South Africa on this front last month to 1.0% from 1.5%. The IMF also pared down its global growth forecast for this year to 2.8% from 3.% largely because of the chaos and uncertainty triggered by US President Donald Trump's ham-fisted tariffs and trade wars. The bottom line is that South Africa is running out of fiscal room and that R75-billion question is the sword of Damocles hanging over Budget 3.0. DM
New York Times
23-03-2025
- General
- New York Times
After the L.A. Wildfires, a Race to Save the Tiles, and the Soul, of Altadena
Amid the ash, warped metal and husks of cars, the chimneys appear eerily uniform, each like a tombstone for a burned-down house. In many cases, they are all that is left of the thousands of homes consumed by the Los Angeles wildfires. Fred Van der Linde said his fireplace 'was the only thing that was standing' after the Eaton fire incinerated his century-old home in Altadena in January. Remarkably, its patchwork of historic clay tiles depicting tulips, pomegranate blossoms and medieval knights in shining armor also remained intact. 'My first thought was: I want to try to salvage it,' he said. Mr. Van der Linde's fireplace is among several dozen that were left standing with their historic tiles more or less intact after the Eaton fire tore through Altadena, an unincorporated community in the foothills of the San Gabriel Mountains north of Los Angeles, on Jan. 7, killing 17 people and destroying more than 9,400 homes, businesses and other buildings. Now, a group of neighbors, masons and other volunteers are racing to salvage the tiles — many of which are at least a century old, and can be worth thousands of dollars apiece — from burned-out homes before they are demolished or stolen. The tiles, many of which were handmade locally in the early 1900s, tether Altadena to its history and are part of the rich cultural and architectural legacy of Los Angeles. For some residents, the effort to rescue them has also become symbolic of the battle to save the community from predatory investors who, in the aftermath of the Eaton fire, have pressured some homeowners in the bucolic enclave to sell their land. 'We're in a battle for the soul of the place,' said Eric Garland, an Altadena resident and one of the people leading the salvaging effort, known as Save the Tiles. Altadena's founders, he said, were reacting to 'a surging modernity, very much like the present moment.' They envisioned a future grounded in the past and revered harmony with nature, Mr. Garland said. 'We know what built the place,' he said, 'and therefore, we know how to rebuild.' The clay tiles, many of which feature textured reliefs of mythic figures and nature motifs in muted, earthy tones, date from the Arts and Crafts movement. In 1910, Ernest A. Batchelder, an entrepreneur and pioneer of the movement, began firing tiles in his home kiln in Pasadena, which borders Altadena to the south. The tiles were often used to embellish fireplaces, which Mr. Batchelder viewed as the 'center of the home.' A majority of the tiles being salvaged are Batchelder tiles, Mr. Garland said. 'He was a genius, he was an artist, he was a public servant and he embodied the best of the California spirit,' said Rusty Areias, a former California state legislator who has installed Batchelder tiles throughout his home in Sacramento County. Mr. Areias, who is not involved in the salvage effort in Altadena, added, 'When you see that patchwork quilt of colors, you just go, 'Wow.'' Mr. Van der Linde, who was known among his neighbors for having one of the most well-tended homes on his block, said that when he and his wife returned to their property for the first time after the fire on Jan. 8, they placed their hands on the fireplace. 'When I touched it, it was still warm,' he said. Within days, looters began trying to chip off the Batchelder tiles. So Mr. Van der Linde called Eric Ramos, who owns an architectural salvage company in Los Angeles, to remove them. 'When we got there, he started crying,' Mr. Ramos said of Mr. Van der Linde. 'At that moment, I realized that I couldn't charge him anything.' In the weeks since, Mr. Ramos and other salvage experts have removed the tiles from more than 70 fireplaces in Altadena, Mr. Garland said. He believes there are several dozen more to go. The work is physically demanding. Though his back and hands ache, Mr. Ramos, who has continued to offer his services free, is racing to remove tiles from as many fireplaces as possible before cleanup crews bulldoze them. Each tile, Mr. Ramos said, can be worth anywhere from about $20 to thousands of dollars, depending on its origin and design. 'All that's left are the fireplaces,' Mr. Ramos said. 'I just felt like I had a calling.' Last month, dozens of volunteers spent a weekend helping to map the surviving fireplaces, Mr. Garland said. Volunteers are working to match those fireplaces with the property owners, so they can contact them to offer to remove the tiles. They have written dozens of letters, sent text messages and emails, and made phone calls, Mr. Garland said, but they are struggling to find them all. 'We are trying to reach more homeowners every day,' he said, 'but we are more urgently trying to beat those bulldozers.' After the tiles are salvaged, they are either returned to the owners or stored temporarily in warehouse space arranged by a donor who is assisting the group, Mr. Garland said. Conservators are also helping to clean and repair damaged tiles. The Los Angeles wildfires are now part of the story of these tiles, said Amy Green, one of the conservators. In some cases, the heat of the fire loosened mortar or burned off residue from tiles that were later salvaged, she said. Anytime she and her team glue a broken tile back together, they do so in a way that it can be disassembled. The goal is conservation, not restoration, Ms. Green said. 'We're never disguising the age of something, or hiding the patina of age,' she said. 'We are stabilizing.' The effort to salvage the tiles is a small part of a broader undertaking to rebuild in a way that honors the region's architectural heritage, said Adrian Scott Fine, the president of the Los Angeles Conservancy. 'Altadena had a very rich, distinctive, unique sense of place,' Mr. Fine said. 'How do you rebuild in a way that meets modern-day codes but still is representative of the look and feel, and the materiality and the scale, of what was there before?' Generations of Black and Latino families have cherished Altadena as an emblem of middle-class prosperity; a place where Angelenos could afford a single-family home. But many residents, mired in complex insurance claims, are now considering whether to rebuild or move on. Dozens of burned properties have been listed for sale, and homeowners have been flooded with all-cash offers for their land. In response, yard signs throughout Altadena declare that it is 'NOT FOR SALE!' There is a fear that an exodus would open the door to expensive new developments, forcing out longtime residents and forever changing the neighborhood's character. Felita Kealing, 61, has lived in the San Gabriel Valley her whole life. The wildfire burned down her home of 25 years in Altadena, but she said there was no doubt that she would rebuild. Though the hardwood floors, molding and other elements of her 1925 Spanish-style home could be reconstructed, she said, they will never have the same character as the original materials. Her tiles, though, were saved. 'Besides our family, or besides the lot,' she said, 'that's the only thing that really connects the old with the new.'
