Locally, investment performance in South Africa echoed the subdued sentiment on the state of the economy [b334a3f3]. The South African Reserve Bank kept interest rates high at 8.5% as inflation rose slightly to 4.8% in August and shot up to 5.4% in September [b334a3f3]. However, the bank's decision to hold the repurchase rate at 8.25% was based on an improved GDP outlook, positive spending by firms and households, expected growth in household income, and a revised upward investment forecast [8eba8671]. The Monetary Policy Committee also revised its forecast for core inflation slightly downward for 2023 and 2024 [8eba8671].
Finance Minister Enoch Godongwana announced that South Africa's public finances were in a parlous state, with tax revenue down substantially and the government facing higher borrowing costs [b334a3f3]. Investors remain concerned about holes in the nation's budget, which the central bank said will force local rates to remain elevated for some time to come [b334a3f3]. The country's budgetary problems have less to do with overspending and more to do with declining revenue collection. Turgid economic growth, lower commodity prices, and declining exports of coal and iron ore due to infrastructure deficits have all contributed to the country's looming fiscal crunch [b334a3f3].
However, the Transnet crisis is now seen as a serious threat to the economy [8eba8671]. The ongoing crisis at Transnet, South Africa's state-owned logistics company, has disrupted supply chains and caused significant economic damage. The crisis has led to delays in the movement of goods, including exports, and has negatively impacted various sectors of the economy. The South African Reserve Bank's decision to hold interest rates steady despite the Transnet crisis reflects its confidence in the positive inflation outlook and other factors supporting economic growth [8eba8671].
Globally, investment performance has also been impacted by various factors. The ongoing uncertainty in the global markets has created a cautious sentiment among investors. Factors such as geopolitical tensions, trade disputes, and supply chain disruptions have contributed to the volatility in global markets. Investors are closely monitoring these developments and adjusting their investment strategies accordingly [b334a3f3].
Economic growth in South Africa is expected to stagnate below 1% this year due to inadequate electricity supply, freight rail capacity, and a weaker global outlook [b5e6e14e]. The Medium-Term Budget Policy Statement (MTBPS) forecasts a 0.8% growth in real GDP in 2023, lower than the previous projection [b5e6e14e]. The recovery in sectors such as tourism, agriculture, construction, transport, and communications has not been enough to boost the overall growth outlook. Power cuts are expected to continue for the remainder of this year before gradually easing in 2024. The National Treasury highlights that operational failures in coal exports could have added 1.3 percentage points to the current account balance in 2022. However, load-shedding hours have declined quarter by quarter this year due to improved plant performance, and additional capacity from renewable sources is expected to curtail power cuts. The global economic environment, including weaker growth in China, lower commodity prices, and the possibility of higher US interest rates, is less supportive of South Africa's growth prospects. The International Monetary Fund (IMF) has lowered its global economic growth forecast for 2024. Inflation in advanced economies is projected to ease, but higher oil prices and wage increases pose upside risks. South Africa's dwindling growth outlook is not unique, as other emerging markets and developed economies also face subdued growth prospects this year [b5e6e14e].
President Ramaphosa visited the port of Richards Bay to address the logistics nightmare caused by coal trucks snarling up the road into town. Transnet is considering blocking trucks from delivering cargo to the port. South Africans need to be informed to create a prosperous future.
The South African Reserve Bank (SARB) has left the door open for further interest rate hikes in the new year if consumer inflation exceeds the upper limit of 5.9%. The SARB's Monetary Policy Committee (MPC) decided to keep the repo rate unchanged at 8.25%, citing serious upside risks to the inflation outlook. SARB Governor Lesetja Kganyago stated that unless there is a noticeable deviation in the inflation trajectory, the repo rate should remain unchanged throughout most of 2024. The SARB aims to anchor inflation expectations around the midpoint of the target band. The decision to leave the interest rate unchanged was criticized by Everest Wealth CEO Thys van Zyl, who believes it will restrict consumer spending and harm the economy. The SARB revised down its headline inflation forecast for 2023 to 5.8% and expects it to slow to 5.0% in 2024. The bank's forecast for core inflation was also revised slightly downward. The SARB's GDP growth forecast for 2023 was revised upwards to 0.8% [172ceb3c]. After increasing the repo rate to 8.25% in 2023, the South African Reserve Bank (SARB) is expected to begin a rate cutting cycle in mid-2024. Lesetja Kganyago, governor of the Sarb, expressed concerns about upside risks to inflation, including high and unpredictable local food prices, load shedding, and logistical constraints. Offshore inflationary trends, such as the strong US labor market and geopolitical tensions, also contribute to the Sarb's cautious approach. The market is pricing in a short and shallow cutting cycle, with the repo rate dropping to 7.3% by the end of 2025. However, the Sarb's mandate to maintain price stability and expectations for higher global inflation may necessitate a more restrictive rate. The final decision will depend on future economic developments [4951c781].
The South African Reserve Bank's monetary policy committee (MPC) will meet this week to decide on the country's interest rate. Economists forecast that the Reserve Bank will hold the interest rate at 8.25%, but that it will cut it later this year, subject to headline inflation. The Reserve Bank targets inflation to achieve price stability and closely follows the US Federal Reserve's policy decisions. Despite South Africa's headline inflation rate being within the Reserve Bank's target range, sticky global inflation and higher-for-longer US interest rates are seen as upside risks to the domestic inflation outlook. Nedbank forecasts a cut in interest rates as early as September this year, and another in November, which will take the repo rate to 7.75% and the prime lending rate at 11.25% by the end of 2024. [c746fda3]