
Monthly macro and economic insights report
Our monthly To the Point column by economist Dr Roelof Botha offers in-depth analysis and commentary on the latest economic trends, market developments, and financial news. Designed to keep you informed and ahead of the curve, each edition delves into key economic indicators, explores their impact on global and local markets, and provides insights to help you navigate the ever-changing economic landscape.
Inflation declines further
The consumer price index (CPI) has continued its downward trend, with the September figure of 3.8% being the lowest in 42 months. The fact that the CPI has been comfortably within the Reserve Banks’s target range of 3% to 6% for 16 consecutive months has raised questions over the hesitance of the monetary authorities to lower interest rates more aggressively. Until now, the only rate cut has been the 25 basis points cut in September. Due to the sustained drop in the CPI, this cannot be regarded as a switch to less restrictive monetary policy, as the real prime rate has actually increased over the past two months, namely from 7.1% to 7.7%.
The dramatic decline in the producer price index (PPI) from a double-digit figure in March 2023 to merely 1% in September has probably guaranteed a hefty decline in lending rates in November. The PPI serves as a leading indicator for consumer prices and further declines in the CPI are on the cards. Lower interest rates will encourage consumer spending over the festive season, which should boost fourth-quarter GDP.
Uptick in home loan activity
Following a declining trend in home loan activity lasting 13 quarters (mainly because of the highest interest rates in 14 years) the BetterBond Index of home loan applications started a modest recovery at the beginning of 2024.
During the third quarter, the number of home loan applications increased by 4.5% (quarter-on-quarter) and by a more modest 1.6%, compared to the third quarter of last year. During October, the number of applications swelled by almost 30%, compared to the fourth quarter of last year.
Prospective homeowners have been confronted by high interest rates and substantial increases in the deposits required for accessing home loans, which is not conducive to any meaningful expansion of residential property market activity. As a result, the number of home loan applications remains 13% lower than in the first quarter of 2022, when the restrictive monetary policy started to impact the property market. Now that interest rates have started a downward cycle, 2025 may well turn out to be a bumper year for the home loan industry.
New life in the Absa PMI for manufacturing
During October, the Absa Purchasing Managers’ Index (PMI) for the manufacturing sector recorded a reading above the neutral 50-mark for the second consecutive month, which has not occurred since early 2023. The business activity index increased by 4.1 points to 55.6 in October, whilst new sales orders remained above the 50-mark – signalling a sustained expansion in demand.
According to the Bureau for Economic Research (BER), local demand is expected to pick up pace as some benefits from the interest rate cut materialise. Consumer spending is also expected to benefit from withdrawals related to the two-pot retirement system. Unfortunately, the employment index remained just below 50. Sustained demand growth is required to have a meaningful positive impact on new job creation, which may start happening once interest rates decline further.
Mini-budget emphasis on infrastructure
October witnessed the traditional tabling of National Treasury’s Medium Term Budget Policy Statement (often referred to as the “mini-budget”), which provided enough information for cautious optimism over fiscal stability and future economic growth prospects. The mini-budget has never been a vehicle for announcing major changes to fiscal policy and this year was no exception, barring the emphasis placed on infrastructure.
An entire chapter was dedicated to infrastructure development reforms, which focus on partnerships with the private sector, some of which may eventually lead to a derivative investment platform for infrastructure projects.
It seems clear that the partners in the new government of national unity (GNU) are still finalising a clear fiscal strategy along with the reforms required to enhance the country’s growth prospects. In the meantime, growth projections remain positive, albeit rather subdued. South Africa’s fiscal debt-to-GDP ratio is not expected to deter increased expenditure on infrastructure, with the latter having become a prerequisite for higher growth.
Chromium and manganese sales on a roll
Weakness in key commodity prices has plagued South Africa’s mining industry revenues over the past two years but this has been mitigated largely by the splendid sales value performance of chromium ore and manganese ore. During July and August, proceeds from sales of platinum group metals, iron ore and coal, remained lower than two years ago, but gold, chromium and manganese have softened this blow.
Fortunately, the mining sector’s contribution to GDP remains significantly higher than before the Covid pandemic. Since the third quarter of 2019 (pre-Covid), the value of sales of minerals has increased by more than 40%.
Hopefully, the stimulus packages recently announced by the Chinese government will eventually lead to higher demand for commodities from the world’s second-largest economy, which should provide impetus to South Africa’s mining sector.
Disclaimer
Although reasonable steps have been taken to ensure the validity and accuracy of the information in this document, Optimum Investment Group (OIG) does not accept any responsibility for any claim, damages, loss or expense, however, it arises, out of or in connection with the information in this document, whether by a client, investor or intermediary.
Optimum Investment Group (Pty) Ltd. Is an Authorised Financial Services Provider (43488).
All investments involve risk, including the potential loss of principal. There is no assurance that any financial strategy will be successful. OIG does not guarantee that the results of any advice, recommendations, or strategies will be achieved. Before making any investment decisions, customers should thoroughly review all relevant investment product documents and information. It is essential to assess whether an investment aligns with your financial situation, objectives, and risk profile.
This document may contain forward-looking statements identified by terms such as “expects,” “anticipates,” “believes,” “estimates,” “forecasts,” and similar expressions. These statements involve risks, uncertainties, and other factors that could cause actual results to differ materially from those projected. OIG is not responsible for any trading decisions, damages, or other losses resulting from the use of the information, data, analyses, or opinions provided.
Past performance does not guarantee future results. Neither diversification nor asset allocation ensures a profit or protects against a loss.
The information, data, analyses, and opinions presented herein are for informational purposes only and do not constitute investment advice or an offer to buy or sell any security. References to specific securities or investment options should not be considered an offer to purchase or sell those investments. The performance data shown reflects past performance and is not indicative of future results.
The opinions expressed are those of OIG as of the date written, are subject to change without notice, and do not constitute investment advice.