Latest news with #PolicyUncertaintyIndex
The Citizen
a day 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
5 days ago
- Business
- The Citizen
Policy Uncertainty Index drops slightly while global and local uncertainty remain
When economic policy uncertainty is strongly present in the environment, it lowers investment, employment and output. The Policy Uncertainty Index for the second quarter has decreased slightly but remains deep in negative territory as the global outlook remains uncertain despite the US promising to reduce tariffs on goods imported from South Africa. According to the NWU Business School Policy Uncertainty Index (PUI) for the second quarter, policy uncertainty eased to 75.9 compared to its record high of 78.6 in the first quarter of the year. The Index was launched in early 2016 and is published annually in January, April, July, and October. An increase beyond 50 reflects heightened policy uncertainty, while a decline means reduced uncertainty. The Policy Uncertainty Index is expressed as a net balance, representing the net outcome of positive and negative factors that influence the calibration of policy uncertainty. The three elements constituting the latest Policy Uncertainty Index show: The media data reflected a modest decline in references to policy uncertainty The survey of economists almost universally assessed policy uncertainty to be more or less unchanged The University of Stellenbosch's Bureau for Economic Research survey of manufacturers experiencing policy/political uncertainty was slightly up from 77 to 80. ALSO READ: Policy Uncertainty Index drops sharply due to various local and global risks Partial respite on trade with suspension of US tariffs for Policy Uncertainty Index Professor Raymond Parsons, an economist at the NWU Business School, says that while the global outlook is highly uncertain, there has been a partial respite on the trade front, as the US administration has suspended most, but not all, tariff hikes until July 9, pending further negotiations. 'Internally, although there have been some positive developments, they were outweighed by negative factors.' Parsons says the global economic growth outlook was further trimmed by international organisations such as IMF and the OECD that reduced growth forecasts for most major economies, including the US economy, except for the EU economy, where modest growth is still anticipated 'The downward revision of various global economic growth outlooks therefore stems from a convergence of geopolitical risks, elevated economic uncertainty due to 'Trumpanomics' and erratic tariff decisions and a tangible repricing of risks in financial markets generally. 'These overall economic assessments were reinforced by the Israeli-Iran conflict, further increasing global economic uncertainty. (This Policy Uncertainty Index was finalised before the US attack on Iran).' Parsons also points out that the US Fed decided to leave interest rates unchanged for the fourth time in June, while the World Bank assesses that the Sub-Saharan economy will grow by 3.5% in 2025, rising to 4.3% in 2026-2027, but with the usual associated risks and uncertainties. ALSO READ: Policy Uncertainty Index falls, confirming uneven economic recovery Positive factors for South Africa: lower inflation and repo rate in Policy Uncertainty Index In the second half of 2025, positive factors in South Africa over the past quarter included lower inflation and easier interest rates, and if the inflation outlook continues to stabilise, there is the possibility of another modest cut in borrowing costs later in the year, Parsons says. 'There is also now the prospect that South Africa may be off the Financial Action Task Force (FATF) grey list by the end of 2025, which will mean that borrowing costs will be lowered for South Africa. 'At the policy level, the most important development in the second quarter, which is necessary to promote, was probably parliament's eventual finalisation and acceptance of a 'pragmatic' third 2025-26 Budget, but without the controversial VAT [value-added tax] increase. 'However, if the various key parameters in the Budget are not met, future risks to fiscal sustainability remain.' ALSO READ: Business Leadership CEO expresses worry about recent GNU tensions Negative factors to beware of in second half of 2025 in Policy Uncertainty Index Parsons also points out that negative factors offsetting the positive ones in the second quarter include: The muted high-frequency data in recent months The disappointing 0.1% gross domestic product (GDP) growth in the first quarter National Treasury and the South African Reserve Bank are scaling down growth forecasts for 2025 and Higher unemployment. 'The weak fixed capital investment trends revealed in the GDP figures for the first quarter also raised a red flag, and heightened planned infrastructural spending must urgently respond. If present trends persist, the present GDP growth outlook for 2025 is about 1%, increasing to about 1.5% next year.' He warns that the developing economic recovery in South Africa is struggling to gain momentum and says the country needs a strategic pivot in growth policy to create the extra economic buffers required to deal with external shocks. 'The GNU's policy agenda for a 3% GDP growth target in the medium term therefore now urgently needs an impulse, a jolt, an acceleration, so that the tailwinds in the economy outweigh the headwinds in 2025 and beyond.' ALSO READ: Policy uncertainty in SA increased, but GNU could be positive influence Negative trends in Policy Uncertainty Index that can be reversed Parsons says that although the Policy Uncertainty Index for the second quarter remains well in negative territory for now, these trends proved to be reversible in the past if the right actions are taken through policies and actions under South Africa's control. 'In any event, the emerging economic recovery at present is battling to gain traction and therefore needs maximum support to underpin the business cycle upturn. A strategic pivot in investment and growth policies is also needed to create the extra economic buffers required to deal with emerging external shocks.'
IOL News
6 days ago
- Business
- IOL News
Slight easing in policy uncertainty, but economic landscape remains challenging
The North West University Policy 2Q 2025 Uncertainty Index (PUI) released on Monday indicated that the index eased to 75.9 compared to its record high of 78.6 (baseline 50) in 1Q 2025 but still remained in negative territory. Image: File The North West University Policy Uncertainty Index (PUI) for the second quarter of 2025, released last week, has indicated a slight easing, dropping to 75.9 from a record high of 78.6 in the first quarter of 2025. However, this figure still reflected a landscape fraught with economic uncertainty as it remained well below the baseline level of 50. Professor Raymond Parsons, an economist at the North West University Business School, commented on the index's modest decline, framing it as a response to both internal and external factors impacting South Africa's economy. Externally, while the global economic outlook continues to be unstable, Parsons said there has been a measure of relief on the trade front, particularly as the US administration has put a hold on most tariff hikes until July 9. This delay hinges on ongoing negotiations that could further influence international trade dynamics. 'The downward revision of various global economic growth outlooks therefore stems from a convergence of geopolitical risks, elevated economic uncertainty consequent on 'Trumpanomics' and erratic tariff decisions, and a tangible repricing of risks in financial markets generally,' he said. Specifically, international organisations such as the International Monetary Fund (IMF) and the Organisation for Economic Co-operation and Development (OECD) have recently downgraded their growth forecasts for most major economies, including the United States. The only exception appears to be the European Union, which is still expected to see modest growth. Domestically, South Africa is heading into the second half of 2025 with a mix of economic signals. On one hand, recent quarters have shown evidence of lower inflation and a potential easing of interest rates. Parsons said should the inflation outlook stabilise, there may be room for another modest reduction in borrowing costs. Additionally, he said there was hope that South Africa could exit the Financial Action Task Force's (FATF) grey list by the end of 2025, which would further lower borrowing costs. 'There is the possibility of another modest cut in borrowing costs later in the year. There is also now the prospect that SA may be off the FAFT's grey list by the end of 2025, in which case borrowing costs will be further lowered for SA,' he said. However, Parsons cautioned that the positive indicators are offset by significant negative elements. In particular, he noted that the country experienced a disappointing GDP growth of just 0.1% in the first quarter of the year, coupled with downgrades of growth projections by both the National Treasury and the South African Reserve Bank (Sarb). Elevated unemployment rates and muted high-frequency data exacerbate these challenges. Parsons said that at the policy level, the most important development in the second quarter which is necessary to promote certainty was probably the eventual finalisation and acceptance by Parliament of a 'pragmatic' third 2025/26 Budget, but without the controversial VAT increase. 'However, if the various key parameters in the Budget are not met, future risks to fiscal sustainability remain,' he said. Parsons urged that the National Government's agenda for a 3% GDP growth target in the medium term requires a significant boost to ensure that the economy's tailwinds can overcome the prevailing headwinds in the years to come. 'A strategic pivot in growth policy is needed to create the extra economic buffers required to deal with external shocks,' he said. 'The GNU's policy agenda for a 3% GDP growth target in the medium term therefore now urgently needs an impulse, a jolt, an acceleration, so that the tailwinds in the economy outweigh the headwinds in 2025 and beyond.' BUSINESS REPORT
