Finding common ground 3.0

South Africa was not immune to the global disruptions. The country could face a 30% reciprocal tariff on exports to the US, although exemptions were granted for certain minerals and metals such as platinum group metals. Sectors that will be hardest hit include the agriculture sector, notably citrus, and the automotive industry. Policy makers have started engagements, but this will happen against a backdrop of recent US-SA diplomatic tensions.The IMF downgraded its economic growth outlook for South Africa to 1,0% from 1,5% in 2025, while also decreasing the 2026 forecasts to 1,3%. The entity highlighted upward pressure on debt metrics if fiscal prudence is not applied.

In early April, the fiscal framework for the Budget was adopted in parliament by a slim majority (194 to 182 votes). Ongoing resistance to the proposed 0,5% VAT increase and questions on the constitutionality thereof brought uncertainty to the implementation of the current budget and the future of the Government of National Unity (GNU). A looming court ruling upended the budget impasse, leading to an out of court settlement between the ANC and DA. Finance minister, Enoch Godongwana subsequently announced the withdrawal of the proposed 0,5% VAT increase that was due to come into effect on 1 May 2025. While the finance minister reiterated the commitment to fiscal consolidation, a downgrade in growth prospects as well as fewer tax measures imply lower revenues, possibly further expenditure cuts and a more challenging balancing act overall. The finance minister will table a revised budget on 21 May.
 

Headline inflation for the year to March 2025 printed at 2,7%, down from the previous print of 3,2% and below market expectations. The downside surprise is largely due to more benign growth in surveyed education fees. Housing and utilities still made the most significant contribution to the headline figure, while lower fuel prices helped over the month. Despite another increase over the month, food inflation remains benign at 2,2%. Core inflation decreased to 3,1%. Producer inflation slowed to 0,5% from 1,0% in February, with lower fuel prices the main driver.

The FTSE/JSE All Bond Index gained a modest 0,8% in April, with bonds strengthening into month end. Despite big swings that saw the Rand above the R19,70 mark against the US dollar, the currency gained ground in the second half of the month and depreciated by a more modest 1,6% in aggregate. After the global sell off in early April, local equity markets regained ground, with the FTSE/JSE All Share gaining 4,3% over the month. In contrast to the first quarter, the recovery was not isolated to resources (2,4%), but saw strength across industrials (5,3%) and financial sectors (4,7%). Large caps outperformed mid and small-caps, although all ended the month in positive territory.