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The Citizen
5 days ago
- Business
- The Citizen
Weekly economic wrap: politics dominate, lower inflation expectations
Between fears of how the economy will react to the DA-ANC tensions and the US' new bill and tariffs, inflation expectations decreased. Politics dominated the economic news this week, with local and global politics taking centre stage, while a South African survey on inflation expectations had good news for consumers from all the groups surveyed. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER) points out that while tensions persisted in South Africa between the DA and ANC, international headlines were dominated by the passage of the 'Big Beautiful Bill' in the US and the fast-approaching US tariff deadline. Bianca Botes, director at Citadel Global, says gold gained, while oil slipped as fiscal and trade risks weigh on commodities. 'Gold advanced to around $3,330/ounce, maintaining a solid position due to lingering uncertainty, even in an improved-sentiment environment. 'The US Tax-and-Spending bill's anticipated $3.3 trillion-plus impact on the deficit, along with the risk of new tariffs, bolstered gold's appeal.' ALSO READ: Policy Uncertainty Index drops slightly while global and local uncertainty remain Oil markets and the rand trending lower She says oil markets, on the other hand, are trending lower, with Brent Crude falling to approximately $68.50/barrel. 'Market sentiment was shaped by speculation that the expanded Organization of the Petroleum Exporting Countries (OPEC+) may increase output at its upcoming meeting, adding to downward pressure. 'Nonetheless, medium-term forecasts remain positive, with some analysts expecting higher average prices in 2025 due to persistent supply constraints outside OPEC and steady demand growth. However, geopolitical factors remain in play, particularly US sanctions on Iran, which added a layer of uncertainty to the global supply picture.' The rand kept surprising economists, strengthening to around R17.50/$, its strongest level since late 2024, supported by a declining dollar, elevated gold prices and improving local political sentiment. 'While the rally has been encouraging, the rand's outlook remains sensitive to both domestic developments and broader commodity market dynamics.' Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, say the rand was buoyed by higher global risk appetite this week, firming to its strongest level since the second week of November, trading at R17.60 on Friday afternoon. ALSO READ: Inflation expectations almost at four-year low Inflation expectations looking good De Schepper says according to the BER's inflation expectations survey, expectations declined across the board in the second quarter, with the inflation expectations of all three social groups, (businesspeople, trade union representatives and analysts) decreasing, with the downward adjustment extending across the forecast horizon. On average, the respondents expect that headline consumer inflation will be 3.9% during 2025, then rise gradually to 4.3% in 2026 and 4.5% in 2027. The inflation expectations of households for the next 12 months decreased to 5.4%, from 5.7% before. This is the lowest rate since the fourth quarter of 2021. 'The moderation in expectations not only firms up the likelihood of a 25 basis points rate cut in July but should also support the South African Reserve Bank's (Sarb) desire to shift to a lower inflation target. Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the household experience of inflation is determined by spending patterns. 'While lower-income households will be more affected by food, higher-income households will be more sensitive to transport and insurance costs. That said, higher household expectations reflect the nuances beyond headline inflation readings. 'This is a dynamic that will also affect how quickly the Sarb is able to efficiently and sustainably achieve a lower inflation objective. High administered inflation may need to be compensated for by further non-admin core disinflation, which suggests less monetary policy easing. That said, the efficacy gains from a credible central bank and effective communication cannot be overlooked.' ALSO READ: Absa PMI increases but in contractionary territory for eighth consecutive month PMIs a mixed bag again The Absa Purchasing Managers' Index (PMI) increased by 5.4 points in June to reach 48.5, the second-highest reading this year and the largest monthly increase since September 2024, although it remains below the neutral 50 points. The S&P Global PMI, on the other hand, decreased by 0.7 points to 50.1 in June. While it remains in expansionary terrain, the underlying data showed output and new business declines, De Schepper points out. Furthermore, she says, the forward-looking confidence index slipped to its lowest level in four years. 'The divergence between this index and the Absa PMI could reflect survey timing: the Absa survey was conducted after the end of the 12-day war between Isreal and Iran and amid a lull in global tariff news, while the S&P survey was fielded during the final two weeks of the month and likely captured more of the lingering uncertainty.' Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the good news in the Absa PMI is that new sales orders surged by 7.8 points, driven mainly by domestic demand. 'Despite stronger demand, production declined slightly, and supplier delivery times lengthened, likely due to increased activity rather than supply issues.' ALSO READ: New vehicle sales finish first half of 2025 on a noteworthy high New car sales keep increasing Naamsa reported that new vehicle sales increased by 18.7%, slightly down from 22% in May, with sales increasing for a fourth consecutive quarter. Exports also bounced back with 7.9% growth from a 14.6% contraction in May. Nkonki and Matshego say new vehicle sales surprised on the upside in June, much higher than their forecast of 14.3%. They noted that imported models outperformed those produced by local OEM's, reflecting heightened price sensitivity among consumers given still-tight household budgets. 'The broader recovery in vehicle sales is supported by subdued inflation, better credit conditions and the 100-bps drop in interest rates. However, the outlook is tempered by soft business confidence and lingering uncertainty around trade policy. Still, the industry should benefit from a more supportive macroeconomic backdrop heading into the second half of the year.'
The Citizen
20-06-2025
- Business
- The Citizen
Weekly economic wrap: Bad news for oil prices, rand soldiers on
While the week was uneventful on the local economic front, the same cannot be said for the international picture for oil prices. As expected, the week brought bad news for oil, but thankfully not such bad news for the rand as Israel and Iran entered a full-blown war after Israel struck Iran's nuclear facilities last week. Closer to home, inflation remained the same in May, while retail sales showed a solid performance in April. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), points out that so far none of the global superpowers has directly become involved in the Israel-Iran war, with US president Donald Trump saying that he will decide in the next two weeks what to do, although he already approved attack plans. 'In commodity markets, there is good news with a higher platinum price and bad news with a higher oil price for South Africa's trade dynamics. The platinum price jumped to a more than 10-year high this week, supported by demand from China, sustained investor interest and concerns about a deficit in the market, with demand outstripping supply. 'On a negative note, the oil price surged higher this week and is currently almost 20% above the price at the start of the month. Iran directly supplies about 3 million barrels of oil to the market per day, and this could technically easily be made up by a country like Saudi Arabia, which is still voluntarily cutting back production. 'However, the real concern is that freight in the Strait of Hormuz, which channels about 15% of the world's oil and 20% of liquid natural gas, is disrupted. Oil continues to flow, but prices to charter large oil tankers sailing through the strait have already more than doubled from last week.' ALSO READ: What Israel–Iran conflict means for South African economy Oil prices surge as Israel-Iran war heats up Bianca Botes, director at Citadel Global, agrees that the recent outbreak of war between Israel and Iran has significantly unsettled global energy markets, with profound implications for oil prices, the global economy, and Middle Eastern power dynamics. 'This escalation triggered immediate volatility in oil markets, with Brent Crude and West Texas Intermediate (WTI) prices surging by over 4% from the start of the conflict, seeing Brent reaching around $76/barrel and WTI surpassing $75/barrel. Since the start of the conflict, oil futures have risen approximately 10%, reflecting market anxiety over potential supply disruptions. 'Iran is OPECʼs third-largest oil producer, extracting about three million barrels per day. Despite sanctions limiting its exports, Iran remains a significant player, especially in supplying China and India. The conflict threatens Iranian oil production and shipping routes, notably the Strait of Hormuz.' Botes points out that analysts warn that oil prices could spike to $100 per barrel or even $120 per barrel if supply through the Strait of Hormuz is disrupted. 'Such a price shock would reverberate through global markets, impacting inflation, consumer costs, and economic growth worldwide. 'Brent Crude Oil futures fell below $73/barrel, but are still set for a third consecutive weekly gain. Fears of supply disruptions due to the ongoing conflict supported prices, even as Iran continues to export crude at high levels. A sharp drop in US crude inventories earlier in the week also helped keep oil prices elevated.' She says gold prices dropped below $3 360/ounce, nearing a one-week low and heading for their first weekly decline in three weeks. 'Investors have been selling gold to cover losses in other markets, and the prospect of no or gradual interest rate cuts limited gold's appeal.' ALSO READ: Israel vs Iran: Why you may soon have to pay more for petrol in South Africa The rand soldiers on De Schepper says the rand exchange rate held up well during the week, but depreciated slightly against a stronger dollar on Thursday and closed the week weaker against the dollar, euro, and pound. Botes notes that the rand is bouncing between R17.90/$ and R18.10/$, showing a slight weakening trend since its recent rally. 'The rand's performance was largely influenced by global risk sentiment and fluctuations in commodity prices. 'Compared to other emerging market currencies, the rand has held up well in recent sessions, despite ongoing uncertainty in global markets and the impact of international developments on investor appetite for risk assets.' Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, point out that the rand broke through R18/$, dropping to its lowest level since the second week of May as global risk aversion spiked and investors dumped emerging market assets. 'The local currency touched R18.15/$ on Thursday evening before recovering to around R18.01 this morning, down 1.2% from R17.80 on Monday.' The rand was trading at R17.99/$ this afternoon. ALSO READ: Inflation unchanged in May at 2.8% as economists expected Inflation remains at 2.8% in May According to the latest release from Statistics SA, inflation stayed below 3% in May at 2.8%, the same as in April. The largest contributions came from food and non-alcoholic beverages, which increased by 4.8%, primarily driven by higher meat prices. Katrien Smuts, economist at the BER, says while the recent foot and mouth disease outbreak put pressure on red meat prices, it was not the sole driver. 'Prices were already trending upward for several months and some analysts suggest the impact may be short-lived. Outbreaks often lead to export bans, which can increase local supply and place downward pressure on domestic prices. 'The ban on poultry imports from Brazil, due to an avian influenza outbreak, is expected to be temporary and limited to affected areas. While Brazil is a key poultry supplier to SA, the impact is also only expected to be short-lived.' Nkonki and Matshego say inflation remaining steady at 2.8% in May was in line with market expectations but higher than their 2.3% forecast. 'The primary contributor was food prices, although increases in housing, utilities and alcoholic beverages also played significant roles. Despite ongoing downward pressure from fuel prices, persistent price increases in other sectors shaped the overall inflation landscape.' Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, note that fuel prices dropped sharply, but warn that risks from a weaker rand and rising global oil prices could reverse this trend. 'Despite current disinflation, geopolitical tensions and trade uncertainty ahead of the July Monetary Policy Committee (MPC) meeting suggest that the South African Reserve Bank (Sarb) will likely maintain a cautious stance and hold rates.' ALSO READ: China's clever trade deal with Africa – removal of tariffs on most goods Increase in retail sales in April, but motor trade decreases Statistics SA's latest retail trade sales data showed another solid performance in April, with sales increasing by 0.9% compared to March and 5.1% compared to a year ago. The main driver of growth was the general dealers' category, which increased by 5.3%. Despite another steep annual decline of 6.5%, wholesale trade sales perked up by 0.9% compared to March. However, motor trade sales decreased by 1% compared to March and by 0.9% compared to a year ago. Smuts says while the muted inflation print provides some welcome relief and April retail sales showed the consumer has some strength, the question is how long this can be sustained. 'Real incomes are squeezed amid unchanged personal income tax brackets, a pending electricity tariff hike in July and an increase in the fuel levy.' Nkonki and Matshego expect the upward momentum in retail sales to continue, supported by rising real incomes, subdued inflation, continued withdrawals of contractual savings and lower debt servicing costs compared to a year ago. Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano point out that despite April's strong performance, retail activity over the past three months remains 0.5% lower compared to the preceding three-month period, suggesting that household spending may be losing momentum. 'The spike in annual sales likely reflects holiday-related spending and two-pot pension withdrawals coinciding with the new tax season.'
The Citizen
13-06-2025
- Business
- The Citizen
Weekly economic wrap: Dramatic jumps for gold and oil
Missiles and drones raining on Iran from Israel had an immediate effect on the global and local economy, with the prices of oil and gold increasing. Bad news about the South African economy was overshadowed by the end of the week with Israel's attack on Iran that immediately sent the prices of gold and Brent Crude Oil rocketing as investors invested in the safe haven of gold and fears escalated of disruption in oil supply. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the economic story for the week was initially relatively positive, with the overarching narrative that the US and China agreed on a trade truce. 'However, overnight, Israel struck Iran's nuclear facilities and military sites and killed senior commanders in dozens of strikes. While Israel attacked Iran before, this is the first time nuclear facilities were purposefully targeted, with those being 'at the heart' of the operation, according to Israeli Prime Minister Benjamin Netanyahu.' She points out that the oil price spiked by more than 4% to a two-month high amid concerns of renewed unrest in the Middle East mid-week, but came off those highs when a risk-off mood returned in global markets. 'This morning, Brent Crude futures jumped by 12% to about $78/barrel. Currency markets settled following an initial knee-jerk reaction after the news of the attack broke. The extent of the retaliation will determine much of the market and global reaction. The US was quick to state it was not involved and warned Iran not to target the US.' ALSO READ: Economic activity picked up for the first time in 8 months in May Dramatic jump for oil and a substantial rally for gold Bianca Botes, director at Citadel Global, also noted that the price of Brent Crude Oil, the global benchmark for petroleum prices, jumped dramatically to approximately $76 per barrel this morning, its strongest level since February. 'This sharp increase occurred after Israel's surprise military attack on Iran overnight, which created serious concerns about potential oil supply interruptions across the global market. The situation escalated when Israel announced a state of emergency, indicating that Iranian retaliation against Israeli locations could happen soon.' She says this development raised fears about a wider regional war that could affect the Strait of Hormuz, a critical waterway that handles roughly one-fifth of the world's oil transport. Botes points out that gold prices experienced a substantial rally, climbing over 1% to surpass $3,440/ounce in the early hours of this morning, nearing all-time highs as investors seek safe haven assets. 'The precious metal's surge directly followed Israel's military action against Iran, with Israeli Prime Minister Benjamin Netanyahu confirming that the strikes targeted Iran's nuclear facilities while acknowledging Iran's continued ability to respond. 'Beyond the Middle Eastern conflict, gold received additional support from uncertainty surrounding American trade policies. President Trump's threats to implement unilateral tariffs on trading partners created further market anxiety, although US Treasury Secretary Scott Bessent suggested the current 90-day tariff suspension might be extended.' ALSO READ: Structural reform is silver bullet needed for SA economy to grow – OECD Oil price highest since April, gold jumps 3.2% for the week Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, note that Brent Crude Oil is hovering around $72.43 a barrel this morning, its highest level since 3 April, up by 5% since Friday last week. 'Oil prices were already under increasing pressure early in the week on reports that the US-Iran nuclear talks had deadlocked. 'Gold has jumped by 3.2% for the week to $3 418 this morning, while platinum is down by 1.7% overnight after strong investor demand briefly propelled it through $1 300 an ounce on Thursday.' ALSO READ: R26 billion rescue from World Bank: Can the loan save Eskom and Transnet? Rand folds under the pressure of possible war in the Middle East Botes says the rand experienced significant pressure during trade on Thursday and early this morning, coming off its recent highs and resuming a sideways trend. 'The weakness in the rand is largely driven by the rebound in the dollar, while increased geopolitical tension and renewed trade tensions drove flight to safe-haven assets.' Nkonki and Matshego, say the rand dropped sharply overnight, breaking through R18/$ as global risk aversion jumped after Israel bombed Iranian nuclear sites. 'The assault added to the tensions that simmered early in the week after the US and Iran failed to reach an agreement on Iran's nuclear programme with the 60-day deadline stipulated by US President Donald Trump. 'The rand is trading around R17.96/$ this morning, its weakest level since 30 May. It touched R17.69/$ on Tuesday, its highest level since the second week of December, buoyed by investor demand for higher-yielding assets.' The rand was trading at R17.91/$ on Friday afternoon. ALSO READ: Manufacturing output falls sharply and unexpectedly in March Manufacturing production worse than consensus forecast According to Statistics SA, manufacturing production decreased by 6.3% in April, after a downwardly revised 1.2% decrease in March. Nomvelo Moima, economist at the BER, says the headline figure came in worse than the consensus forecast, which anticipated a 4.5% decline in output. Weakness was reported across the board, with nine out of the ten main subsectors contracting. The biggest drags on annual output came from food and beverages (-7.6%), metals and machinery (-6.3%) and motor vehicle parts and accessories (-13%). However, she says, on the positive side, seasonally adjusted manufacturing production increased by a better-than-expected 1.9%, up from a 2.5% decline in March. 'April marked the sixth consecutive annual decline in manufacturing output, consistent with the Absa PMI, which remained in contractionary territory over the same period. 'Therefore, a further decline in May's PMI suggests we could see another month of lacklustre activity in the manufacturing sector.' ALSO READ: Manufacturing experts urge SA to turn more raw materials into products Better start to the year for manufacturing production despite decline Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say despite the decline, it is nonetheless a moderately better start to the second quarter of 2025, although the persistent annual decline underscores ongoing unfavourable operating conditions and is consistent with their assessment of downside risks to the near-term economic growth outlook. Nkonki and Matshego say the contraction in manufacturing production steepened in April, with output falling by 6.3% from -1.2% in March. 'The sharper drop in output was driven by the increase in public holidays this year compared to 2024. Nonetheless, the sector continues to struggle due to inefficiencies in the logistics network and subdued domestic and global demand. 'These circumstances have led to ample spare capacity, high operating costs and weak commodity prices.' ALSO READ: SA's shrinking mining sector and the policies that brought us here Bigger than expected contraction in mining production Mining activity also revealed a downside surprise compared to the consensus expectation of a -4% decrease. According to Statistics SA, annual mining output plunged by 7.8% in April, down from an upwardly revised 2.5% contraction in March. The biggest drag came from a fall in the production of platinum group metals (-24%) followed by gold (-2.5%) and coal (-1.7%) which both shaved off -0.3% percentage points from the annual figure, while iron ore made the largest positive contribution to output (+5.3%). Moima says on a positive note for quarterly gross domestic product (GDP) dynamics, mining production ticked up by 0.6% month-on-month, after a 3.6% increase in March. Nkonki and Matshego point out that the contraction in mining continued for a sixth consecutive month in April, registering a sharper decline of 7.7% from -2.8% in March. 'More public holidays in April this year, combined with the struggles on the logistics front and subdued commodity prices, contributed to the weakness.' Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the contraction in mining production marks the sixth consecutive month of annual decline. 'The outcome was worse than the Bloomberg consensus forecast of a 4.0% decline and largely reflected the disruptive impact of breakdowns and third-party supply issues affecting platinum group metals.
The Citizen
30-05-2025
- Business
- The Citizen
Weekly economic wrap: Rand strongest since December, but falling again
Although the rand kept its head up all week and strengthened even more on the back of the repo rate cut, it lost traction on Friday afternoon. The biggest economic news of the week was the mostly unexpected cut in the repo rate of 25 basis points, while the rand kept its momentum and reached its strongest level since December. Gold, on the other hand, was not so lucky. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research, says the Monetary Policy Committee (MPC) of the South African Reserve Bank (Sarb) decided to cut the repo rate by 25 basis points to 7.25%, which means that the prime interest rate is now 10.75%. 'The dovish tilt, with all six members voting for a cut and one member even preferring a 50 basis points cut, was surprising, but welcome. In addition, the clear signalling around moving to a 3% inflation target is positive and removes uncertainty.' Bianca Botes, director at Citadel Global, points out that the rand strengthened to its best level since December, helped by a weaker dollar and the Sarb's repo rate cut, which aims to support the local economy and as inflation remains low. Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, also point out that the rand gained further ground this week. 'The Sarb's interest rate cut and the announcement of the imminent lowering of the inflation target boosted sentiment, lifting the local unit to R17.80/$ late Thursday, and on Friday morning it was trading around R17.83/$.' Unfortunately, the good news did not last, and the rand traded at R18.04 on Friday afternoon. ALSO READ: Reserve Bank cuts repo rate thanks to lower inflation, stronger rand Decrease in prices of oil and gold Oil prices dropped for the second week in a row, with Brent Crude trading near $63/barrel, Botes says. 'This decline is driven by investors remaining uncertain about what will happen with US tariffs, as the legal back-and-forth is making the market more unpredictable. 'Traders are also watching the upcoming expanded Organization of the Petroleum Exporting Countries (OPEC+) meeting, where major oil-producing countries are expected to agree on increasing oil production in July.' Botes says there is extra tension because Kazakhstan is producing more oil than it is supposed to, which could lead to even more supply than planned. On the demand side, recent US economic data shows the economy shrank slightly in the first quarter, raising worries that people and businesses might use less fuel.' She says gold prices also slipped to around $3,290/ounce and are heading for a weekly loss, as investors wait for the PCE index, which could affect future interest rate decisions. Investors also remain cautious as they wait for more clarity on US inflation and interest rates. ALSO READ: Producer Price Index remains unchanged, but an increase is coming Producer price inflation remains muted Lebohang Namo, economist at the BER, says producer price inflation (PPI) for final manufactured goods, remained unchanged at 0.5% in April. 'Like consumer inflation last week, this was above consensus expectations following a string of downward surprises.' Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say continued deflation in fuel, paper products and transport equipment helped keep overall producer inflation contained in April. Nkonki and Matshego, economists at the Nedbank Group Economic Unit, say April's producer price inflation provided more evidence of subdued price pressures. Producer inflation held steady at 0.5%, matching our forecast and exceeding market expectations of 0%. 'Deepening fuel price deflation offset higher food prices. Elsewhere, price pressures remained relatively subdued. Food, beverages and tobacco inflation accelerated from 4.1% to 4.7%, while deflation in coke, petroleum, chemicals, rubber, and plastics deepened from 4.1% to 5.5%. Producer inflation will likely rise moderately off a low base in the months ahead.' ALSO READ: Salaries decreased by 2% in April, but higher than a year ago Private sector credit extension increased in April Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say Private Sector Credit Extension (PSCE) growth increased to 4.6% in April, up from 3.4% in March, largely driven by an acceleration in corporate credit growth, which increased to 6.0% from 3.9%. Household credit growth was 3.0%, marginally higher than the 2.9% recorded in March. Within corporate credit, growth in general loans and advances rose to 7.4% from 4.3%, overdraft growth climbed to 12.6% from 10.3%, and mortgage advances grew by 6.2%, slightly up from 6.1% in the previous month. Instalment sales credit growth remained stable and above inflation at 5.0%, compared to 5.1% in prior months, while credit card growth declined sharply to 0.6% from 2.5%. In the household segment, general loans and advances and overdrafts remained in contractionary territory, while mortgage advance growth was stable at 2.3%, unchanged from the prior month. Growth in other household credit categories remained above inflation, with instalment sales credit at 6.2% and credit cards at 8.5%. Nkonki and Matshego say the growth in broad money supply improved slightly from 5.8% in March to 6.1% in April, exceeding their expectations of 5.9%. 'The boost in PSCE came from faster growth in loans and advances and a less severe decline in bills and investments. 'The most significant momentum came from companies, where advances jumped from 5.5% to 7.5%, amplified by last year's low base. Even so, company overdrafts and general loans accelerated, while commercial mortgages and instalment sales and leasing finances held relatively steady.' They also note that the slow recovery in household loans continued, rising slightly from 2.9% to 3%. 'The uptick came mainly from a rebound in credit card usage, while vehicle finance and home loans were unchanged. We expect the recovery in credit demand to gain moderate upward traction in the months ahead, supported by easier financial conditions and firmer domestic demand.'
The Citizen
07-05-2025
- Business
- The Citizen
SA's economic growth outlook growing increasingly dim
South Africa is not alone, either: the outlook for global economic growth is also being cut due mainly to the US' import tariffs. South Africa's economic outlook is growing increasingly dim as various organisations and analysts start cutting their economic growth outlook for the country to only 1.5%. Moody's Ratings and the Bureau for Economic Research both cut South Africa's economic growth outlook to 1.5% from 2% expected previously, while Prof William Gumede, associate professor at the Wits School of Governance writes that National Treasury's gross domestic product (GDP) growth forecast of 1.9% in 2025 is based on optimistic assumptions. According to Moody's Global Macro Outlook 2025-26, a global growth slowdown is underway, with policy uncertainty adding risks. The agency warns in its report that tariff increases on countries and high sectoral tariffs on products, such as steel and aluminium, will weigh on global trade and investment decisions, with considerably negative growth consequences for most G20 economies. 'Given these developments, we have cut our forecast for global growth sharply to 1.9% in 2025 and 2.3% in 2026 from our forecast in February, which called for a more modest slowdown to 2.5%. Policy uncertainty weighs on a global economy that was already slowing. 'Uncertainty surrounding global economic policies is likely to take a toll on consumer, business and financial activity. Despite a pause and reduction in some tariffs, policy uncertainty and trade tensions, especially between the US and China, are likely to dampen global trade and investment, with consequences across the G20. ALSO READ: Experts say no way SA can achieve economic growth of 3% this year Grim global and South African economic growth outlook Moody's now expects that US GDP growth will cool to 1% in 2025 and 1.5% in 2026, and China's real GDP growth to slow to 3.8% in 2025 and 3.9% in 2026. The agency also cut growth forecasts for Canada, Mexico, Germany, France, Italy, the UK, Australia, Korea, Japan, India, Indonesia and South Africa. For South Africa, Moody's cut its real GDP projections by 0.2% from its February projection to 1.5% and is more optimistic than the IMF, which expects South Africa's economy to grow by only 1% this year and only 1.3% in 2026. Meanwhile, Lisette IJssel de Schepper, chief economist at the BER, said at a BER conference on Tuesday that South Africa's growth is also affected by tensions in the government of national unity (GNU) and concerns that it will not hold and function effectively after the dispute about Budget 2025 almost caused it to collapse. However, she said the biggest source of uncertainty at the moment is around tariff policy. 'The risk of sudden policy changes remains real, such as Monday's foreign film tariff announcement. We only expect price increases and product shortages to affect US consumers from mid-June.' She also pointed out that real consumer spending, which is necessary for economic growth, accelerated from 0.7% in 2023 to 1.0% in 2024, but consumers are still worse off in real per capita terms. 'Alarmingly, the 0.7% growth in consumer income in 2024 was virtually fully derived from the roughly R40 billion two-pot withdrawals since 1 September, and despite the two-pot boost in 2024, real per capita disposable income was down 1.3% compared to 2022 and 2.4% compared to 2018.' ALSO READ: No significant economic growth expected for SA over next three years Factors that can affect global and local economic growth De Schepper said global factors that could warrant a change in the BER's baseline forecast include severe financial market instability that triggers a real economic downturn, a sudden reversal in the oil price and continuing geopolitical turmoil in the Russia-Ukraine war, the Middle East and the Taiwan Strait. She said domestic factors include the return of sustained and/or higher stages of load shedding, negative shocks to South Africa's production capacity and/or export potential, the possibility of social unrest, protests and strike action and revisions to historic GDP data. ALSO READ: Absa foresees economic growth of 2.1%, but Trump and budget can disrupt it Are we a 1% economy? De Schepper says the BER made a significant downward adjustment to its near- and medium-term real GDP forecast, with some members of the team arguing for an even lower forecast, questioning why we are not a permanent 1%-growth economy as we have been for the last fifteen years or so. 'It is irresponsible to build a forecast on hope. During the second half of 2024, there was a real sense of urgency around structural reform, sentiment was improving, and the consumer benefited from some (temporary) windfalls. 'Our forecast of the time was not based on hope, but on the expectation of some crucial puzzle pieces finally falling into place. Unfortunately, some puzzle pieces are now sliding from the table once again (slow progress on structural reform, consumer windfalls turning into headwinds), and some pieces have been forcefully thrown on the floor by Trump.' However, she said, it is also irresponsible to overreact when there is so much uncertainty. 'While slow, there is still some progress on the structural reform front. Load shedding and other structural constraints on the local economy should continue to ease, albeit not as fast as we anticipated. 'Indeed, when it comes to exports and investment, our level is so depressed that a little goes a long way to lift overall GDP growth. South African consumers have proven to be resilient before, but will continue to be tested.' ALSO READ: World Bank has simple answer to improve South Africa's economic growth Treasury too optimistic about South African economic growth Gumede writes in an occasional paper for the Inclusive Society Institute titled 'Going for growth: Structural reforms needed for South Africa's economic recovery', that Treasury's forecast fails to reflect the country's ongoing structural obstacles to growth, including its public service, governance, policy and debt woes. 'If South Africa stays on its current economic policy path or becomes more economically populist and if it is unable to strike a compromise deal with the US, it is unlikely to get even the 1.9% GDP economic growth predicted by Treasury in the 2024/2025 Budget. 'Treasury predicts real GDP growth of 1.9% in 2025, an upward revision from the 1.7% projected in the 2024 Medium Term Budget Policy Statement (MTBPS). Over the medium term, economic growth is projected to average 1.8%. The past decade has seen the economy grow only 0.8% per year, while the country's population has been growing at 1.5% per year.' Gumede says the Treasury growth forecasts assume higher investment, recovery in household consumption, declining inflation, moderately rising employment, improving household balance sheets and easing structural constraints on growth. However, he believes Treasury's growth forecast appears to be overly optimistic. ALSO READ: IMF's bad news about economic growth for SA, thanks to Trump tariffs Treasury not considering continued obstacles to economic growth 'Treasury does not appear to consider the continued structural obstacles to growth, such as the continued lack of state capacity due to public service, state-owned entities (SOEs), infrastructure and municipal failures caused by corruption and incompetence and the many anti-growth policies. 'High levels of business regulation also undermine growth. Moreover, global uncertainties threaten economic growth. US President Donald Trump unleashed widespread global tariffs, including 30% against South Africa, and has cut development funding to the country.' Gumede says the US withdrawal of development aid, which included significant amounts for state, public, and civil society institutions, left a big hole in South Africa's public finances. 'Instead of infrastructure-led growth, South Africa got consumer and welfare-led growth, which is not sustainable. It is not possible to change the country's growth path without tackling the structural inhibitors such as corruption, incompetence, state, SOE, DFI and municipal failure and anti-growth, anti-business policies. 'A new growth path must be based on boosting infrastructure, creating a manufacturing mining processing complex, especially around critical minerals, an agriculture industrial complex, expanding renewable energy, establishing a biofuels industry, expanding SMEs and fostering new industries that South Africa lacks, but which the world needs. Such a new growth path has to be collaboratively led by government, private sector, civil society and professionals.'
