Tag Archives: South African Reserve Bank

South Africa’s economy slows in Q1 2025

South Africa’s economy barely grew in the first quarter of 2025 (January–March), expanding by just 0.1% compared to the fourth quarter of 2024, according to Statistics South Africa (StatsSA).

On the production (supply) side, only four of the ten major industries posted positive growth, with agriculture leading the way.

On the demand side, modest gains in household consumption, stronger exports, and inventory drawdowns helped keep the economy in positive territory.

Agriculture surged by 15.8%, contributing 0.4 percentage points to GDP growth, largely thanks to good rainfall. Horticulture performed especially well, and animal production also posted solid gains. Without this agricultural boost, the overall economy would have contracted by 0.3%.

The transport, storage & communication sector was the second-largest positive contributor, supported by growth in land and air transport, along with transport support services.

Consumer activity improved modestly, with the trade, catering & accommodation sector growing by 0.5%. Positive contributions came from retail and motor trade, accommodation, and food and beverages.

The biggest drags on the economy were mining and manufacturing, which together subtracted 0.4 percentage points from GDP growth.

Mining output declined by 4.1%, mainly due to a sharp drop in platinum group metals. Coal, chromium ore, gold, copper, and nickel also underperformed. Although iron ore, manganese, and diamonds recorded gains, it wasn’t enough to lift the sector into positive territory.

Manufacturing also slowed, impacted by weak output in petroleum & chemicals, food & beverages, and motor vehicles & transport equipment.

Only three of ten manufacturing divisions saw growth: textiles & clothing, wood, paper & publishing, and radio, television & professional equipment, according to the latest StatsSA manufacturing release.

After a 310-day reprieve, load shedding returned in Q1, contributing to a 2.6% decline in the electricity, gas & water sector – its worst performance since Q3 2022 (-2.8%). Lower water consumption further dragged down the sector’s performance.

On the expenditure side, GDP grew by the same marginal 0.1%, reflecting subdued economic momentum.

Household consumption expanded for a fourth straight quarter, lifted by higher spending on transport (especially vehicles), food & non-alcoholic beverages, restaurants & hotels, miscellaneous goods & services, and health. However, consumers spent less on recreation, culture, and communication, according to StatsSA.

Despite the slow start to the year—and political pressures surrounding fiscal policy – finance minister Enoch Godongwana remains optimistic about the medium-term economic outlook.

Notably, he tabled a national budget for the third time in a single calendar year in May.

According to the Treasury’s projections, real GDP growth is forecast at:

-1.4% in 2025
-1.6% in 2026
-1.8% in 2027

This comes even as the International Monetary Fund (IMF) recently revised its 2025 forecast downward to a flat 1.0%.

The South African Reserve Bank (SARB) is more aligned with the IMF, forecasting 1.2% growth in 2025, rising to 1.8% by 2027.

A Reuters poll of 26 economists (May 22–27) put South Africa’s growth at 1.2% for 2025, down from last month’s 1.5% forecast, and revised the 2026 estimate slightly lower to 1.6%.

Nedbank economists had forecast no quarterly growth in Q1: “Real GDP is forecast to make no gains in Q1, slowing from 0.6% in Q4 2024.”

Still, they struck a cautiously optimistic tone for the rest of the year:

“We 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. SA’s structural constraints remain pretty much the same, with only minor improvements from the previous year. On the cyclical front, lower inflation and interest rates will provide impetus to demand.”

Economic headwinds persist despite SARB’s easing stance

The South African Reserve Bank (SARB) cut its main repo rate by 25 basis points to 7.25% on Thursday. The decision by the Monetary Policy Committee (MPC) was unanimous, although one member preferred a larger cut of 50 bps.

Unlike the MPC members, the market has been divided regarding a rate cut, said Reza Hendrickse, portfolio manager at PPS Investments.

“Doves have argued inflationary pressures are subdued and real interest rates in SA are therefore too high. As such, there is ample scope to cut rates to support economic growth without stoking inflation.”

“Hawks, on the other hand, have argued that there is limited room for a cut, given rates are close to the SARB’s neutral level, and global risks are elevated, posing a risk to the rand.”

Economists polled by Reuters had predicted a close call, with a significant minority expecting that the typically cautious MPC might hold the policy rate.

In addition, Hendrickse said that although inflation is well below the 4.5% mid-point level, it is currently in the region of where the SARB would like it to be in the longer term.

The SARB trimmed its GDP projection to 1.2% for 2025, increasing to 1.8% by 2027. It still views structural reforms as supportive of longer-term growth but acknowledges headwinds from slower global growth, said Hendrickse.

“Inflation in SA is running at below 3% year-on-year, and the SARB has revised its inflation forecast lower, given oil and rand dynamics, as well as the cancelled VAT hike.”

In his closing comments, the governor raised the point that the SARB’s work, in conjunction with National Treasury, on lowering the inflation objective from 4.5% to 3% was at an advanced stage.

“The MPC is advocating for lowering the target, which it sees as beneficial over the long term. The market is not entirely convinced, however, with some believing it is more important for South Africa to achieve higher nominal growth to ease the debt burden,” the financial expert said.

Nedbank economists said the votes reflect a remarkable about-turn from the caution that dominated the March meeting. “Unsurprisingly, the benign inflation outcomes of recent months, a very subdued inflation outlook, and the rand’s unexpected resilience in the face of global uncertainty tilted the debate in favour of further easing.”

Inflation forecasts: The SARB again concluded that inflation remains well contained, substantially lowering its headline and core inflation forecasts. It sees headline inflation averaging only 3.2% in 2025 before slowly creeping up to 4.2% and 4.4% in 2026 and 2027, respectively.

The revisions stem from a lower starting point, expectations of a firmer rand, and lower global oil prices, said Nedbank. These factors offset the impact of higher fuel levies, it said.

“Of course, they removed the earlier VAT increases from their assumptions. The SARB expects core inflation to average 3.3% this year, rising to 4.5% in 2027. Altogether, the SARB’s forecasts paint a benign inflation picture for the next three years.”

“The MPC also changed its risk assessment of the inflation outlook from upside to balanced. The rand’s impressive pullback from the lows of early April likely strengthened the Committee’s confidence in their inflation forecasts,” Nedbank said.

The lender said it expects 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,” it warned. 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 is 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.”

Nedbank expects growth of 1% in 2025 and 1.5% on average over the next three years. “However, the uncertain global environment and implicit collapse of AGOA pose significant downside risks,” it warned.

FNB chief economist Mamello Matikinca-Ngwenya said the MPC’s decision to cut interest rates highlights a greater focus on domestic fundamentals.

“Inflation remains below the bottom of the inflation target range, and high-frequency data reflects a weak start to 2025 from a productive sector point of view, which will be worsened by faltering global prospects. Ultimately, the macroeconomic outlook is benign, providing ample space for a continued cutting cycle.

“South Africa’s difficult fiscal trajectory is delaying any improvements in sovereign risk and borrowing costs. The outlook on interest rates will continue to reflect these risks,” she said.

BetterBond said the cut in the prime lending rate to 10.5% provides welcome relief to homeowners, “and sends a strong signal to investors that South Africa is intent on stimulating economic growth.”

“With three rate cuts since September, we’ve already seen a boost in homebuying activity! The prime rate is now only slightly higher than pre-pandemic levels, and if more cuts happen as anticipated, we could see even more buyers entering the market.”

SA real estate outperformed equities and bonds in April as rate cut expectations lift investor mood

The South African Real Estate Investment Trust (REIT) sector surged 6.9% in April, outperforming equities (4.3%) and bonds (0.8%), despite fewer trading days due to public holidays.

Investor sentiment was lifted by growing expectations of accelerating distributable income and potential interest rate cuts by the South African Reserve Bank (SARB).

“This was a sweet month for the sector. The sector continues to offer value, trading at historically high discounts to net asset value which excludes the Covid-19 period,” said Ian Anderson, head of Listed Property and Portfolio Manager at Merchant West Investments, and compiler of the SA REIT Association’s monthly Chart Book.

April also saw strong trading activity, with turnover exceeding R12.2 billion — the highest monthly volume in 2025 so far — indicating renewed investor appetite amid rising share prices.

Leading the gains were SA Corporate (+15.3%), Attacq (+13.3%), Resilient (+10.9%), and Redefine Properties (+10.5%).

“There was little company-specific news to drive these moves, but a more favourable macro-economic and political backdrop certainly played a role,” added Anderson.

Inflation fell below the SARB’s lower target range in April, reinforcing expectations of a rate cut at the upcoming Monetary Policy Committee meeting in May.

The market is now anticipating at least one additional cut before year-end.

“Lower interest rates not only support property valuations through reduced discount rates but should also lift distributable income growth across the sector in 2025 and 2026, especially with average loan-to-value ratios sitting between 35% and 40%,” said Anderson.

He noted that a stronger rand and lower oil prices are likely to help keep inflation in check, providing the SARB with further room to reduce rates.

Meanwhile, the proposed 0.5% VAT hike from the National Budget has been suspended following pushback from within the government of national unity.

On the global front, easing US-China trade tensions and US President Donald Trump’s delay of new tariffs on several countries supported risk appetite, benefiting global equities and indirectly boosting sentiment toward South African REITs.

In corporate developments, Accelerate and Delta announced further asset disposals to shore up their balance sheets. Emira disclosed the departure of CEO Geoff Jennett due to strategic disagreements with the board.

Meanwhile, Vukile, through its Castellana Properties subsidiary, acquired Forum Madeira in Portugal for €63.3 million, extending its international retail footprint.

SARB models grim scenarios amid US tariff threat

The South African Reserve Bank (SARB) has warned that borrowing costs across global markets are likely to stay elevated for longer, as concerns grow over inflation and geopolitical uncertainty – particularly in the wake of US President Donald Trump’s renewed tariff agenda.

“Confidence around the medium-term outlook has reduced significantly due to heightened global trade tensions and elevated domestic uncertainties,” the central bank said in its Monetary Policy Review released Tuesday in Johannesburg.

“Although policy rates are expected to decline further in major economies, the new risks that have emerged suggest they will remain higher for longer.”

Since returning to the White House in January, Trump has reignited global trade tensions by implementing an aggressive tariff regime. On April 2, he announced reciprocal tariffs on US trading partners, later postponing them for 90 days on most countries while maintaining a 10% levy.

In response to the mounting uncertainty, SARB held its benchmark interest rate steady at 7.5% last month, following three consecutive 25 basis point cuts.

The bank reiterated its commitment to data-dependent policy, guided by scenario analysis amid what it called “unusually high risks and uncertainty.”

The review notes a significant shift in global market sentiment, with short-term rate expectations adjusting higher due to increasing fears that the long-standing trend of disinflation may be stalling – or reversing.

Domestically, inflation remains largely contained and is forecast to hover around the 4.5% midpoint of SARB’s target range. However, the central bank flagged rising uncertainty, driven by both external pressures and internal political tensions.

These include disagreements within the governing coalition over proposed value-added tax (VAT) increases.

The Bank estimates that a planned 0.5 percentage point VAT hike on May 1 – with another expected next year – could add 0.2 percentage points to headline inflation annually.

Worst-Case Scenario

In its review, SARB outlined a series of stress-tested economic scenarios. Its most severe forecast projects a 0.69% GDP contraction should the African Growth and Opportunity Act (Agoa) be scrapped, alongside the imposition of broad-based US tariffs and a 15% depreciation in the rand.

“Rising global tariffs and possible countervailing measures present risks to the outlook for global growth and inflation, threatening deeper stagflation,” the Bank noted. “With such high global policy uncertainty and risks, confidence about how the medium-term outlook will play out is reduced.”

This scenario would push inflation up by nearly one percentage point and raise the repo rate by 1.24 percentage points.

Tariff Fallout and Exchange Rate Shocks

SARB modelled a range of scenarios, varying in severity. One projection examined the termination of Agoa without retaliatory tariffs, resulting in a mild 0.04% drop in real GDP and minimal inflation or repo rate impact.

A more severe variant included a blanket 25% US tariff on South African exports. In this case, GDP would shrink by 0.23%, inflation would dip slightly (-0.04 percentage points), and the repo rate would fall marginally (-0.08 percentage points).

“We assume that the tariffs are going to be permanent,” said Theo Janse van Rensburg, head of macro forecasting at the Bank. He noted that 7.5% of South Africa’s exports go to the US, with only 25% of those currently benefiting from Agoa — meaning the direct impact of its loss would be limited, but not negligible.

Brighter Outlook in Dollar Weakness Scenario

In a more optimistic model, SARB assumed a 5% depreciation of the US dollar against the euro and a 10% increase in global commodity prices.

Under these conditions, South Africa’s GDP is projected to rise to 1.83% in 2025 – up from the baseline forecast of 1.66% – with additional gains in 2026 and 2027.

Headline inflation would ease to 3.54% in 2025 and continue to decline, while repo rates would remain below baseline projections through most of the period, rising only slightly above expectations in 2027.

Still, SARB warned that risks are becoming increasingly skewed to the upside. What were considered “balanced” in November 2024 had shifted by March 2025, as more adverse factors began to materialise. These include VAT hikes, ongoing services inflation, and the global fallout from Trump’s trade agenda.

“Tariff-related price increases remain a major upside risk to the global inflation outlook,” the Bank said.

The Bank also confirmed that it has moved monetary policy closer to a neutral stance following earlier rate cuts aimed at curbing inflation.

However, it emphasised that further easing would be approached with caution due to lingering risks from fuel, food, and electricity prices, which could still filter through to wages and services.

“With such high global policy uncertainty and risks, confidence around how the medium-term outlook will play out is reduced,” the Bank concluded.

In the meantime, many South Africans continue to feel the pressure of elevated borrowing costs. This financial strain is driving increased reliance on credit, a shift toward value-driven purchases, and early withdrawals from retirement savings.

These behavioural shifts are detailed in the SpendTrend25 report, released last week by Discovery Bank and Visa.

Now in its third year, the report analyses consumer spending from 2019 to 2024, using credit card data from Discovery Bank clients and the broader South African population.

Covering seven major metro areas — Cape Town, Durban, Johannesburg, Pretoria, Bloemfontein, East London, and Gqeberha — the report offers regional insight into how consumers are adapting to prolonged financial pressure.

To supplement the data, Discovery Bank and Visa also commissioned a survey of 1,000 high-income credit card users, examining spending habits, payment preferences, and broader financial behaviours.

Although inflation dropped from 6% in 2023 to 4.4% in 2024, spending remained muted as income growth stalled and borrowing costs stayed high. Average spend per active credit card fell behind inflation by five percentage points.

“This growing gap suggests that factors beyond prices – like income constraints and rising expenses – are shaping consumer spending habits,” the report notes.

Interest rates continue to weigh on households

Despite easing inflation, the prime lending rate held at 11.75% for most of 2024, limiting any boost to disposable income. With borrowing still expensive, discretionary spending remained subdued, and per-card expenditure showed little movement year-on-year.

Economic strain has led to greater dependence on credit and early access to retirement savings.

“The prime rate cut in September 2024 offered some relief, but the slow recovery has led many to rely on value-based spending, two-pot retirement withdrawals, and increased credit use to cope. Consumers are spending less, despite prices stabilising,” the report states.

With markets unsettled by rising global trade tensions, the SARB’s Policy Committee is expected to keep rates unchanged at its next meeting in May.

“The South African Reserve Bank is likely to sit on its hands for the next few months, until there is greater clarity over US trade and monetary policies,” said Old Mutual wealth investment strategist Izak Odendaal.

For now, exchange rate stability remains the central bank’s priority, with interest rate adjustments likely deferred until global conditions become clearer.

Reserve Bank cuts interest rates by 25 basis points

The South African Reserve Bank (SARB) has reduced the interest rate by 25 basis points, bringing the repo rate to 7.50%.

This decision from the Monetary Policy Committee (MPC) aligns with expectations, as the country’s inflation continues to ease.

Four members of the MPC voted in favour of the rate cut, while two opted to keep rates unchanged.

Inflation in South Africa stood at 3.0% in December, well below the SARB’s midpoint target of 4.5%.

The central bank expects inflation to remain under 4.5% in the first half of the year, although it may rise to around this level later in the year, with core inflation staying within the target range.

Reserve Bank Governor Lesetja Kganyago said inflation appears well contained in the near term.

“However, the medium-term outlook is more uncertain than usual, with material risks from the external environment. Domestic factors such as administered prices are also problematic.”

Inflation expectations continue to align with the SARB’s target, though risks to the inflation outlook remain on the upside due to global factors.

Looking ahead, the SARB forecasts GDP growth of 2.0% by 2027, despite ongoing challenges in the mining and manufacturing sectors, which are still struggling to return to pre-COVID-19 levels.

As growth picks up, the central bank expects improvements in both the primary and secondary sectors, alongside increased investment.

With inflation currently at the lower end of the SARB’s target range, South African consumers can expect further rate cuts in the near term. This would bring the total reduction in interest rates to 0.75% since September 2024.

For consumers, the immediate effect of this cut would be a reduction in monthly debt repayments, including home loans, car loans, and credit card payments.

For example, a 0.25% rate cut would lower the monthly repayment on a R1 million home loan by R515.19.

Commenting on the broader economic sentiment, Herschel Jawitz, CEO of Jawitz Properties, noted that the shift in sentiment since the May 2024 elections, combined with improvements in power supply and lower inflation, has positively impacted the residential property market.

Areas like Gauteng, which had experienced oversupply and stagnant prices, are seeing increased buyer demand. While it may take time for this to result in price growth, further interest rate cuts are expected to fuel positive momentum in the market.

South Africa expected to cut borrowing costs

Recent signs of recovery from key infrastructure sectors like Eskom and Transnet, and an improvement in inflation figures, brings cause for hope for South Africa’s economic climate in 2025.

Inflation rates are falling, and many expect that South Africa could see further interest rate cuts this year. Add to that the possibility of a quicker exit from the grey list and a recovering property market, and it’s clear that the outlook for 2025 is far brighter than it has been in recent years.

The South African Reserve Bank is expected to cut borrowing costs by 25 basis points on Thursday, despite concerns that uncertainty around US monetary and trade policies could limit future rate cuts.

Economists in a Bloomberg survey predict Governor Lesetja Kganyago will lower the benchmark interest rate to 7.5% at a press briefing near Johannesburg. Most anticipate the six-member monetary policy committee will unanimously support this decision, following the same reduction as in previous meetings.

Old Mutual’s chief economist Johann Els attributes the rate cut to South Africa’s low inflation and minimal local inflationary pressures. Annual inflation has stayed below the central bank’s 4.5% target range since August, reaching just 3% last month.

In an interview with Moneyweb, Adriaan Pask, chief investment officer at PSG Wealth, noted recent positive developments in the country, particularly at Eskom and Transnet, as signs that the country is moving in the right direction.

While not yet perfect, these improvements are tangible, and is starting to unlock value in the market. As investor sentiment improves, capital flows into South African markets have begun to increase, which has had an immediate impact on valuations.

Pask stressed that the recovery is still fragile. There remain significant risks both globally and locally. The US fiscal system, particularly its high debt levels and the potential for rising borrowing costs are a concern, and while Wall Street has been strong, there are worries about the concentration risk within the ‘Magnificent Seven’ companies and the broader implications of a rising US debt ceiling.

Pask said that high interest rates and the growing cost of debt are starting to affect corporates, consumers, and the government,” said Pask.

Additionally, Pask highlighted China’s uncertain outlook. While the country’s valuation might present opportunities, he pointed to the fragilities in its real estate market and broader economic system as major risks.

In Europe, Pask believes there is potential for gradual improvement. However, investors are still cautious, focusing more on perceived risks than on opportunities that could come with lower valuations.

For South Africa, Pask said that if inflation continues to drop, the country’s GDP numbers could surprise on the upside, and if execution on key plans is successful, South Africa could enter a new phase of sustained growth.

The country, he said, is still in a recovery phase. He advised investors to continue diversifying their portfolios, as this strategy has proven to be crucial in navigating both local and global uncertainties.

He also advised investors to not fear market volatility but rather view it as an opportunity to buy quality assets at lower prices.