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.

Producer inflation at historic low

On aggregate, year-on-year price increases at the factory gate are at their lowest levels since the Reserve Bank started publishing this data in its current format (from 2009). In November, the producer price index (PPI) recorded a negative reading for the second consecutive month – confirming the need to shift the country’s economic policy priority from curbing inflation to encouraging demand via lowering the cost of credit and capital investment.

Consumer prices are also in check, with the November reading of the consumer price index (CPI) remaining below the bottom level of the Reserve Bank’s target range for the second month running. Other reasons for the monetary policy authorities to shift the focus to stimulating economic growth include the fact that South Africa currently has the highest real commercial lending rate of any stable middle- to high-income country in the world. The real prime rate is currently at 8.5%, compared to real lending rates of 3% in France, 2% in Australia, and 1.1% in Chile.

Lower interest rates, which could be forthcoming early in 2025, will serve to encourage consumer spending and investment in new productive capacity by the private sector, which will go a long way towards the Government of National Unity’s stated objective of achieving a 3% GDP growth rate.

Retail trade on par with 2022

After taking a lengthy knock (induced mainly by high interest rates), consumers have developed an appetite for shopping again, as confirmed by the further recovery of retail trade sales. During the first ten months of the year, these sales amounted to almost R1.14 trillion – a huge number and a key contributor to the country’s GDP.

The lengthy rate-hiking cycle introduced by the Reserve Bank at the end of 2021 led to an increase of 37% in debt servicing costs for South African households, which forced consumers to tighten their belts. Fortunately, the recent lowering of the prime lending rate from 11.75% to 11.25%, has played a role in resuscitating household consumption expenditure (albeit only marginal).

Other factors that have facilitated the recovery of retail trade sales include the uptick in employment during the third quarter of the year, as well as increases in real remuneration levels in the economy.

In preparing the 2025/26 budget, the National Treasury will hopefully take note of the wide discrepancy between public and private sector salary increases. The year-on-year salary increases in the two largest sectors of private business activity, namely business services (including investment services) and trade & catering, only just managed to beat inflation, whilst the average increase in public sector salaries amounted to 11.4% – way above the current inflation rate of 2.9%.

New life in construction activity

A welcome recovery of the Afrimat Construction Index occurred during the third quarter of 2024, with seven of the ten constituent indicators comprising the index recording positive readings.

The outstanding performers between the second and third quarters were (rates of increase in parentheses):

• Value of buildings completed in the metros and larger municipalities (23.3%)
• Employment in construction (14.6%)
• Value of building material sales (5.9%)

Other indicators that recorded meaningful improvements on a quarter-on-quarter basis were the value of building plans passed, the volume of building materials produced and the remuneration of construction sector employees. Although the construction sector at large has been battling with the high cost of capital (induced by restrictive monetary policy), the rate hiking cycle has ceased, with the repo rate having been lowered by a combined 50 basis points in September and November.

Another positive development has been the inaugural national summit for crime-free construction sites, which outlines a framework of interventions to combat criminality at construction sites, including the strengthening of industry legislation, developing structured policies, enhancing data systems, and establishing rapid-response mechanisms to expedite arrests and prosecutions for extortion.

Further expansion of electricity supply 

The remarkable turnaround in the stability of South Africa’s electricity supply since April 2024 has received a further substantial boost with the successful reconnection of the Koeberg nuclear power plant’s Unit 2 to the national grid. Following a significant refurbishment of the unit, Eskom announced the welcome addition of 930 MW of power to the grid on 31 December.

Eskom’s recovery plan in pursuit of dependable electricity seems to be on track, with an end to load-shedding becoming a realistic prospect. The operational lifespan of Koeberg’s Unit 2 has been extended by an additional 20 years, which will play a significant role in Eskom’s goal to increase its capacity by 2,500 MW over the next 15 months.

Enhanced energy security has been made possible by a concerted effort to reduce corruption and mismanagement at several power stations, as well as the relentless switch to renewable energy sources by households and businesses across the country. As a result, the supply of electricity that is available for distribution has finally started to reverse the long-term downward spiral inflicted by state capture.