Weekly economic wrap: the bleak picture of SA's GDP

The Citizen

06-06-2025

Even the Reserve Bank governor, Lesetja Kganyago, echoed the bleak picture, calling the GDP data 'not a pretty picture'.
It was a busy week on the economic front with a few announcements, with almost all of them pointing out that the GDP data for the first quarter that showed the economy grew by only 0.1% is indeed correct.
Tracey-Lee Solomon, economist at the Bureau for Economic Research (BER) says most of the data releases painted a bleak picture of South Africa's economy. 'Not only was the gross domestic product (GDP) growth dismal, but growth for 2024 was also revised lower to just 0.5%.'
Bianca Botes, director at Citadel Global, says the rand strengthened to R17.86/$ before giving back some of its gains. 'The positive move for the rand is largely thanks to a softer dollar and positive news on the national budget.'
Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, point out that the rand touched R17.75/$ on Thursday after US private jobs data pointed to a sharp fall in jobs growth in May, with the reading suggesting that US nonfarm payrolls figures could miss market forecasts. The rand traded at R17.77/$ on Friday afternoon.
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Gold starts to shine again, oil price increases
OPEC+ and its allies agreed on Saturday to increase oil supply by 411 000 barrels per day in July, matching the additions for May and June, in line with expectations. However, Solomon points out, late-week reports stirred fears that the group might opt for a larger hike.
'This downside surprise, coupled with geopolitical developments, including bombings in Russia and Iran's reaction to a report highlighting its growing stockpile of enriched uranium, shifted market focus to reduced oil supply compared to what was expected at the end of last week. As a result, oil prices increased by nearly 2% over the week.'
Botes says the increase in the oil price is partly due to higher demand expected during the summer, as well as concerns that trouble in certain parts of the world could disrupt oil supplies.
'Wildfires in Canada also temporarily reduced the country's oil output by about 7%, although the situation has improved as rain helped control the fires. However, the momentum for higher prices slowed after Saudi Arabia pushed for OPEC+ to boost oil production by over 400,000 barrels per day in August and possibly September, aiming to meet summer demand.'
Gold also increased by 1.6% as rising geopolitical and trade tensions boosted demand for the safe-haven asset. Botes says gold prices climbed to around $3,360 per ounce this week, mainly due to recent US economic data, which has been weak, causing investors to seek safer assets in which to invest their money.
'Expectations that the US Fed may not increase interest rates further also made gold more attractive. Gold is on track for a weekly gain of about 2%.'
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South Africa's bleak GDP
According to Statistics SA, real GDP expanded by just 0.1% in the first quarter of 2025. This follows downwardly revised growth of 0.4% (previously 0.6%) in the fourth quarter of 2024, which meant that the economy expanded by just 0.5% (from 0.6%) in 2024, down from 0.8% in 2023.
Nkonki and Matshego say the meagre 0.1% growth in GDP 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.
'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.
'The upside will be capped by slower government spending due to fiscal constraints and sluggish fixed investment, as well as 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.'
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, and Koketso Mano, economists at FNB, say that while household consumption expenditure growth was maintained, the demand side of the economy reflected ongoing declines in government consumption, exports, and total fixed investment.
'The benefits of the economic reforms implemented so far are taking longer to materialise, as evidenced by the continued weakness in fixed investment. Nonetheless, we still expect growth to increase towards 2.0% by 2027, supported by ongoing structural reforms and cyclical tailwinds, including easing inflation and interest rate cuts, which should bolster household consumption.
'Overall, our near-term forecasts balance weak investment trends with a gradual recovery in consumer spending. However, risks remain tilted to the downside, particularly for fixed investment, given the still-fluid macroeconomic and policy environment.
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Business confidence decreases for first time in more than a year
The results of the RMB/BER Business Confidence Index decreased by five points to 40 in the second quarter of 2025 as the recovery that started in the second quarter of 2024 stalled.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say, considering the prevailing weakness in private sector investment and subdued business confidence, they revised their 2025 growth forecast down to 1.0%, from 1.3% previously.
'Businesses were aware that a proposed VAT hike was scrapped, although many responded before the release of Budget 3.0. Political uncertainty surrounding the GNU also influenced sentiment, though concerns about its stability eased somewhat during May.'
Nkosiphindile Shange, economist at the BER, says this implies that only four out of ten business respondents in the most cyclically sensitive sectors of the economy were satisfied with prevailing business conditions.
'Only wholesale traders saw an increase in confidence, with declines across all other business segments. However, despite the declines, the confidence of retailers and new vehicle dealers remained above the long-term averages.'
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Absa PMI down for the seventh consecutive month
The Absa PMI decreased to 43.1 points in May from 44.7 points in April, remaining in contractionary territory for a seventh consecutive month. There were some improvements in business activity and new sales orders, but the supplier deliveries index pushed the headline PMI lower.
The S&P Global South Africa PMI was more positive and rose to 50.8 points in May from 50 points in April as output and new orders rose for a second consecutive month. Shange says this is the first time the PMI has been in growth territory since November 2024.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say, fortunately, the index for expected business conditions in the near term increased by 13.9 points to 62.5, highlighting a lift in sentiment as external tariffs have been reduced, and local policy uncertainty has abated.
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New vehicle sales 22% higher than a year ago
According to the National Association of Automobile Manufacturers of South Africa, new vehicle sales in May 2025 came in at 45 308 units, an increase of 22% compared to a year ago after sales grew by 11.9% in April. Out of the total reported industry sales of 45 308 vehicles, 88.4% represented dealer sales, while 6.8% represented sales to the vehicle rental industry, industry corporate fleets (3%) and government sales (1.8%). Exports, on the other hand, performed poorly and fell by 14.6% compared to a year ago.
Nkonki and Matshego note that exports fell to 30 112 units as a major original equipment manufacturer (OEM) halted production for upgrades.
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Current account deficit still narrowing
The latest data from the Sarb showed that South Africa's account deficit narrowed to R35.6 billion in the first quarter of 2025, from a revised R39.3 billion in the fourth quarter of 2024. The current account deficit as a ratio of GDP remained at 0.5%, while the trade surplus fell slightly to R221.2 billion from R226.4 billion in the fourth quarter as the value of imports (3.6%) increased more rapidly than exports (2.9%).
Nkonki and Matshego say the drop in the nominal figure reflects an improvement in the non-trade deficit (consisting of the services' primary and secondary income accounts), which narrowed due to lower dividend and interest payments.
'Due to subdued trade performance, the current account balance will likely deteriorate this year. Imports are anticipated to outpace exports, driven by a more favourable domestic environment. Subdued inflation, higher real incomes and a relatively resilient rand will continue to bolster import demand.
'Exports face notable downside pressures due to a weaker, uncertain and generally volatile global economy. Export demand will ease on slow growth in key trade economies and softer commodity prices.'