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

A welcome drop in the repo rate

After halting the rate-cutting cycle in March, the Monetary Policy Committee (MPC) of the Reserve Bank lowered the repo rate by 25 basis points at its May policy meeting. The prime overdraft rate of the commercial banks now stands at 10.75%. This is 75 basis points higher than before the Covid-19 pandemic, when the consumer price index (CPI) was around 4.4% and virtually on the nose of the mid-point of the inflation target range (3% – 6%).

The CPI is currently below the bottom of the inflation target range (at 2.8%) and has been below or within the target range for seven successive quarters. The property sector will welcome the news of a rate cut, as the BetterBond Index of home loan applications remains much lower than before the restrictive monetary policy started at the end of 2021.

A significant percentage of residential property sales are related to owners who cannot afford the sharp increase in debt service costs compared to their disposable income, which remains 33% higher than at the beginning of 2022.  Unemployment also edged up during the first quarter of the year. Fortunately, the producer price index (PPI), which is a leading indicator for consumer inflation, is at a record low of 0.5%, which bodes well for the prospect of further rate cuts in 2025.

Rand outperforms its peers – again

During May, most key currencies took advantage of the lethargic performance of the US dollar, with the bulk of the 16 currencies monitored by Currencies Direct strengthening against the greenback. The South African rand was the star performer during May, leaving all other emerging markets in its wake. Compared to the trade-weighted average appreciation of 0.7% against the dollar by a core group of eleven key emerging market currencies, the rand gained 3.1%.

Reasons for the exceptionally strong performance of the domestic currency are not difficult to find. Apart from the low base effect relating to the knock that followed the announcement by US President Donald Trump of high tariffs on a range of South African exports to the US, international trade data for the first four months of the year confirm a healthy South African trade surplus. Furthermore, the financial account of the balance of payments (which includes foreign direct investment flows) has been in surplus for nine consecutive quarters.

It is worth noting that the rand has also outperformed its peer group since the beginning of the year, with an appreciation against the US dollar of 5%, more or less in line with the Chilean peso and the Malaysian Ringgit, but significantly higher than the trade-weighted average strengthening of 2.7% of eleven key emerging market currencies around the globe.

Good news from S&P Global

Hot on the heels of a welcome improvement in the latest S&P Global South Africa Purchasing Managers’ Index (PMI), came the affirmation by S&P Global Ratings of South Africa’s long-term foreign and local currency debt ratings at ‘BB-’ and ‘BB’, respectively, whilst also maintaining its positive outlook for the country’s finances. The National Treasury would have been delighted at the latter decision, as it provides a de facto stamp of approval for the 2025 National Budget, which has finally been tabled in Parliament (at the third attempt).

South Africa’s private sector PMI rose to the neutral mark of 50 in April, after spending four consecutive months in negative territory, with increases in new orders, output and employment driving the recovery. According to the accompanying statement on the PMI, early signs are encouraging for an improvement in business conditions during the second quarter of the year.

Commenting on the latest developments regarding South Africa’s economy and, particularly, public finances, S&P Global Ratings expects GDP growth to rise to an average of 1.5% over 2025-2028. It has, nevertheless, warned that logistical bottlenecks and global tariff-related pressures may constrain economic activity. The agency believes that the sustainability of the Government of National Unity (GNU) remains for broad policy continuity and enhanced reform momentum. 

A buoyant first quarter for the retail sector

Retail trade sales have been the shining light of otherwise disappointing macroeconomic performance during the first quarter of 2025, posting a real year-on-year increase in sales values of 4.1%. In value terms, South African shoppers spent a whopping R351 billion between January and March, with the four-quarter average reaching a record high of R357.3 billion. On a sobering note, it is clear that retail sales are playing catch-up, as the annual average real increase is merely 0.6% since the first quarter of 2020.

The latest data on retail trade sales also needs to take cognisance of the recent spike in the indicators for long-term insurance surrenders and lump-sum pension payments. These have been influenced by the so-called two-pot retirement system, which commenced in the third quarter of 2024 and has led to a significant increase in retirement fund withdrawals. Little doubt exists over the positive impact of these withdrawals on the value of retail trade sales. The table lists the real year-on-year growth rates during the first quarter of 2025 for the different types of retailers.

Source: Stats SA. Data as at 31 May 2025. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.