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

Balance of payments in excellent condition

South Africa’s balance of payments with the rest of the world ended 2024 on a high note, with the gross gold and foreign exchange reserves reaching a new record high of more than R1.2 trillion. Despite a marginal net outflow on the financial account of the balance of payments during the fourth quarter, it ended the year with a surplus of R62.9 billion – an increase of 18.6% over the figure for 2023 and the third successive year that a surplus on this account was recorded. Due to the traditionally high level of volatility with financial account flows, it is prudent to analyse these data on a four-quarter basis, as depicted by the graph.

During the fourth quarter of 2024, the current account of the balance of payments recorded its second surplus of the year, namely more than R16 billion. This achievement was rather predictable due to a 41% surge in the value of gold exports (quarter-on-quarter), reaching a level of R150 billion for the full year. The gold price continues to break new records and recently breached the level of $3,000 per fine ounce. The precious metal has also played its part in lifting the country’s official forex reserves to a new record high.  

The solid performance of the balance of payments represents one of the key reasons for the continued strength of the rand, which has proven to be one of the most resilient currencies against the US dollar over the past year.

Confidence returns to the agriculture sector

A downturn in confidence levels within the country’s agri-businesses commenced at the same time that the restrictive monetary policy started to bite into both the disposable incomes of households and the capacity of the private sector to invest in new production facilities. Fortunately, the downward trend, which lasted for seven successive quarters, started to head north during the fourth quarter of 2024 and has now gained considerable momentum.

Since bottoming out in the second quarter of 2024, the overall Agbiz / IDC Agribusiness Confidence Index has improved by 84% to reach a level of 69.6 (a level above 50 denotes expectations of growth and vice versa). Notably, the sub-index for capital formation in new productive capacity has also improved strongly from its recent low, namely by 73%, to reach a new level of 75. To eliminate seasonality, the graph is based on four-quarter average data.

The current level of optimism is the highest since the end of 2021, a La Niña year that brought favourable rains across the country. This phenomenon has returned, with good rains over the country’s key regions for crop, fruit and vegetable production, whilst the livestock industry stands to benefit from a welcome improvement in the grazing veld.

An uptick in construction activity

The recent lowering of the repo rate (and, as an inference, also the prime overdraft rate), has exerted a marginal positive impact on the Afrimat Construction Index (ACI) for the fourth quarter of 2024, with the year-on-year increase of 2.5% outperforming the year-on-year real GDP growth rate of only 0.5% by a considerable margin.

The ACI has now improved for three quarters in succession, the first time this has occurred since the Covid lockdowns, re-establishing a familiar trend in the construction sector at large, namely a steady progression of activity throughout the year, followed by a lull in the subsequent year’s first quarter.

The outstanding performers amongst the ten indicators of the ACI during the fourth quarter were (year-on-year rates of increase in parentheses):

• Value of building plans passed by the metros and larger municipalities (6.8%)
• Value of building materials produced (6.7%)
• Value of building material sales (5.4%)
• Employment in construction (2.8%)

As has become customary in South Africa, it has been up to the private sector to increase the level of investment in new productive capacity in the economy, with the level of capital expenditure on buildings and construction works by the private sector reaching a new record high last year.

Producer price index at record low

Price increases at the factory gate remain at their lowest level in more than two decades, with the producer price index (PPI) barely above zero. During the last two quarters of 2024, the PPI, as calculated by the Reserve Bank, recorded two successive quarters of negative readings for the first time since this data series has been kept by the country’s central bank.

Although annualised food inflation came in at 4.2% (considerably higher than the one per cent for the PPI), this level is still comfortably within the Reserve Bank’s target range for inflation (3% to 6%). National Treasury’s latest budget proposals will expand the zero-rating of several processed food items that will mitigate the effect of this recent and, hopefully, temporary rise in the cost of producing certain food products.

Two of the main reasons for the new-found low-level stability of the PPI are year-on-year declines in the prices of vehicles and fuel, whilst price increases for machinery and household appliances have also been muted. The consumer price index is currently very close to the bottom of the inflation target range (3.2%), which translates into a benign inflationary environment. Hopefully, the Monetary Policy Committee (MPC) of the Reserve Bank will take note of these trends and provide some relief for indebted households in May.