30 Jul 2021

SA’s seven day rolling average of Covid-19 cases trending down

Annabel Bishop

Chief Economist

South Africa’s seven day rolling average of daily Covid-19 cases is still trending down, but the Western Cape is seeing an acceleration in its third wave, and KZN too after its riots, but Gauteng retains its deceleration.

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covid-19 graph

While Gauteng continues a rapid deceleration in its third wave of Covid-19 cases, the lift in the Western Cape and KwaZulu Natal’s third waves temporarily interrupted the downwards trajectory of the country’s curve overall, but the country’s numbers are declining again.

However, KZN has now lost all the gains it made initially in its fight against the third wave before its violent riot action earlier this month and is now back at the first peak of its third wave but is likely to exceed it its cases continue to climb as a result of its insurgency.

It can take up to two weeks or more before positive tests come through, and longer for cases which end in fatalities with no testing before, with KZN also at particular risk in its vaccination drive following destruction of infrastructure and lingering concerns over safety and security.

South Africa has administered 7.3 million vaccines, a 1.3 million jump from last week, speeding up its vaccine rollout, with vaccinations back under way in most sites in KZN and Gauteng and the coverage ratio for the population is now at 7.5% (Bloomberg). 

The coverage ratio “divides the doses administered for each vaccine type by the number of doses required for full vaccination”. Government still aims to deliver 35 million doses by the end of the year, using the two dose Pfizer and single dose J&J vaccines .

South Africa is now expected to cover 75% of its population in twelve months’ time, taking it into the second half of 2022, while the global average to reach coverage of 75% of the world population is seen at six months (Bloomberg estimates).

The EU and UK are expected to achieve 75% coverage in two months, the US within seven months, Brazil and Taiwan four months, Columbia five months, Peru, South Korea and Russia six months and India eleven months.  

We continue to believe South Africa is at risk of its fourth wave beginning as early as November this year, with a fifth wave in the second half of next year, while vaccine hesitancy is apparent in the population, with significant numbers choosing not to have the vaccines.

With the lift in the country’s seven day rolling average only occurring for one day, Wednesday this week, and Thursday resuming the decelerating trend, there is no need for any tightening of lockdown restrictions, and these would be very detrimental to the current weaker economy.

Read the full report here

About the author

Annabel Bishop

Annabel Bishop

Chief Economist of Investec Ltd

Annabel holds an MCom Cum Laude (Economics and econometrics) and has worked in the macroeconomic, risk, financial market and econometric fields, among others, for around 25 years. Working in the economic field at Investec, Annabel heads up a team, which focusses on the macroeconomic, financial market and global impact on the domestic environment. She authors a wide range of in-house and external articles published both abroad and in South Africa.



Lesetja Kganyago in conversation

MPC Review: repo rate unchanged with hike unlikely in 2021

22 July 2021


South Africa leaves its repo rate unchanged at the July MPC meeting, indicating a likely hike in Q4.21, although we currently don't think this will transpire given that the inflation forecast for 2022 has been revised lower.

The Monetary Policy Committee’s (MPC) unchanged stance on interest rates saw the rand weaken, to R14.66/USD, with many EM Central Banks having hiked rates. However, there was pressure coming though from the MPC for longer-term normalisation of monetary policy.

The SARB highlighted that financial market and economic conditions are expected to remain volatile for South Africa in the foreseeable future. Global growth is a concern on the spread of the delta variant, while recent unrest in the country has clouded the economic outlook.

Worries over tighter lockdown restrictions, and the negative impact on global growth in key economies is a particular concern, with commodity prices having weakened, particularly metal prices, which has negatively affected the rand this week.

The SARB lifted its inflation forecast for this year somewhat, to 4.3% y/y from 4.2% y/y, but it is the expected inflation outcome six to twenty-four months out, and particularly twelve to eighteen months out, which influences the SARB repo rate decisions.

While the SARB lowered its 2022 inflation outlook to 4.2% y/y from 4.4% y/y, and left its 2023 inflation outlook unchanged at 4.5% y/y, the midpoint of the inflation target range, it projects hikes in the repo rate this year and next (25bp in Q4.21 and over 100bp in 2022).

It forecasts yet further interest rate hikes over 2023, totalling around 100bp, but adds this is still highly accommodative monetary policy as the differential between inflation and the repo rate only rises to 0.5% by the end of 2023, with a neutral level instead seen at 2.0%.

The economy is unlikely to be particularly robust over 2022 or 2023, and such a 2.25% hike in the repo rate is currently unlikely.

The SARB forecasts weak economic growth of 2.3% y/y in 2022 and 2.4% y/y in 2023. For 2021 it forecasts 4.2% y/y, although this is at risk.

The SARB’s interest rate forecasts from its quarterly projection model change frequently, and the SARB also ignores the projections depending on the conditions in the economy. However, faster economic growth will not be achieved by lower interest rates but by structural reform.

Impasses in policy proposals need to be overcome so that economic growth enhancing reforms are promoted, and SA urgently needs to sees efforts to boost business confidence through cutting red tape and the regulatory burden, and adopting free market policies.

Read the full report here

President Ramaphosa in mask

SA's economy will be hit hard by looting and destruction

16 July 2021


Orchestrated destruction of infrastructure and looting will also delay the vaccine rollout and may already have caused a lift in Covid-19 cases.

While much of the widespread looting over the past week was clearly an expression of desperation and criminal opportunism, the South African government has now acknowledged that the unrest was instigated as part of a deliberate campaign to sabotage to the economy and render the country ungovernable. The situation appears to be largely contained, thanks in part to the eventual deployment of the SANDF to the worst flashpoints, but fresh reports have emerged of attempts to attack the country’s key strategic sites.

These sites apparently included the Durban Harbour, electricity sub-stations and power plants, water treatment plants and chemical plants, with sabotage also extending to major supply routes including the railways and highways. In the event, the destruction extended past retail outlets and included factories, funeral homes and actual dwellings as well.

With the police and army slow to respond effectively to the unrest, quelling the rampant lawlessness required the additional efforts of private security companies and community members themselves. Although at its worst the conflict fell well short of actual civil war, risk was certainly there, and violence escalated to near-wartime proportions in some areas.

The violence appeared to be well-orchestrated, with simultaneous actions arising in KwaZulu Natal and Gauteng rather than spreading organically through the Free State, as one might have expected had it been the result of a spontaneous groundswell, and reports have emerged of key instigators fuelling mobs within communities.

In particular, a handful of instigators are reported to have broken down barriers to allow mobs to enter buildings and loot, while urging the destruction of premises, encouraging arson and other acts of destruction early on.  

With the success of the initial looting sprees on the weekend widely circulated, the outbreaks became more frequent early this week, on criminal opportunism and poverty combined with clear acts of premeditated violence and destruction.

With South Africa in the midst of a third wave of Covid-19 infections, the unrest could not have come at a worse time. Against the backdrop of communities fearing for their safety, unwillingness to venture out for Covid-19 tests may be assumed, particularly in KZN, and it is difficult to know how reliable the latest official Covid infection rates are.

After dipping to 11 182 a day, new daily cases of Covid-19 lifted to 17 489 midweek, with many at risk from increased infections on the riots. South Africa’s vaccinations have only reached 4.9million doses so far and the riots risk spreading Covid-19.

South Africa is administering just under 200 000 vaccines a day, with the recent unrest having disrupted a number of vaccination sites and slowed government’s efforts, with GDP growth currently likely to come out at 3.9% y/y this year on the hit to the economy in Q3.21.

Read the full report here

covid-19 update

Third wave may have peaked in Gauteng, risks abound for complacency

9 July 2021


The infection rate is still extremely high, and will not subside instantly, with more deaths to come and vaccinations increasing modestly.

Government is in the process of quickening vaccination rollout from around 100,000 a day, (reaching close to 200,000 yesterday) towards 250,000 to 300,000 a day, although sites fail to keep the momentum going over the weekends, evidencing it is still not a ‘wartime effort’.


At over four hundred recorded deaths a day from Covid-19 yesterday, and four hundred and fifty-seven on Tuesday, this is a ramping up from around two hundred deaths a week ago, as the Covid-19 third wave of fatalities follows infections, with a couple of weeks lag. 


Furthermore, deaths currently recorded from natural causes are reported to be particularly high. Many who do not go for testing may succumb to the disease at home instead, raising the overall death rate in the country, but not necessarily being recorded as a Covid death.


Government reported today that “there is an ongoing rise in infections, hospitalisations and Covid-19 related deaths in SA”, and that “in the last 24 hours, 22,910 new cases, were reported, representing a 34.4% positivity rate. Of these, 11,747 were in Gauteng”.


Furthermore, from mid-July those in the thirty-five to forty-nine year old age bracket will be eligible to register for vaccination on the state system, although those heavily affected by co-morbidities are not able to do so alone, and remain very vulnerable to fatality from Covid.


Government adds, “over 4 million people have received at least one dose of the vaccine”, with Bloomberg’s vaccine tracker for 8th July (using 7th July data) showing 6.2% of the population have received one dose and 4.2% are covered in the sixty million population.


Updating the ratio to today’s published four million administered vaccine doses (4,017,442) yields a ratio of 6.7%, and would bring those estimated by Bloomberg to be fully vaccinated from 2.1% to closer to 3.0%, but this is still well below most other emerging market countries.


Poland has covered 81% of their population, Chile 62%, Hungary 55%, Singapore 52%, China 48%, the Czech Republic 38%, Turkey 34%, Hong Kong 28%, Argentina 26%, Brazil 26%, Romania 23%, Columbia 20%, Mexico 19% and the other emerging markets below this. 


The quickening in SA’s vaccine drive is welcome. Administering 300,000 vaccines a day would allow SA to reach around 36% covered (on a two-dose basis) by early next year - if SA begins administering 300,000 doses a day from next week (with weekends still excluded). 

Read the full report here

Woman and man in masks at restaurant

SA's third wave approaches the peaking level of the second

2 July 2021


Absent new, harsher Covid variants, the move to vaccinate over 50s will help to reduce severity of future waves

South Africa’s seven-day rolling average in new Covid-19 cases has jumped rapidly again, now at 16 916 from 13 009 last week and 9 124 the week before.


In Gauteng, the worst-hit province, the third wave is already far more severe than the first two, with no end yet in sight. Gauteng’s caseload is now above 662 300, up a huge 78 291 individuals in a week from 58 136 the week before. The province's seven-day rolling average in new Covid-19 cases is at 10 613, up from 8 305 last week and 5 737 the week before that.


Nationally, Covid-19 deaths are up to 383 a day, from 166 a day seven days ago, and 77 seven days before that. Although the numbers are volatile, there is evidence of an upwards trend from the end of April, and a spike more recently. The country is broadly tracking Gauteng’s earlier trajectory, although provincial peaks could be lower than Gauteng’s.


The Western Cape is showing a marked quickening in its new daily cases on a seven-day rolling average, now at 1 619 from 1 246 a week ago, and 882 a week before that, as its trajectory mirrors that of Gauteng towards the end of May. 


The North West province too is still showing a marked jump up in new daily infections,  with 1 025 recorded on a seven day rolling average, from 778 a week ago, and 573 a week before that, also mirroring Gauteng’s trajectory, but earlier in May (around 18th).


KwaZulu Natal also evinces this trend, at 935 new cases on its seven day rolling average from 599 a week before that, and it is at an earlier stage, and Limpopo at 824 and Mpumalanga this week from 474 and 510 a week before respectively.  


The other provinces' current seven-day rolling averages of new infections are below 500, but nevertheless increasing in the main. Recent lockdown restrictions will serve to eventually limit the spread, although it takes around seven days for infections to occur after contagions and two to three weeks for deaths to occur for those fatally affected.


Vaccinations are now just above the three million mark, at 5.2% of the population, still increasing at around 100 000 each week day.

Read the full report here

covid-19 update

The third wave continues to build in SA

25 June 2021


Third wave strongly led by Gauteng, with the Western Cape and North West Provinces following suit, with tighter lockdown restrictions for Gauteng a sensible province by province approach.

South Africa’s seven-day rolling average in new Covid-19 cases is at 13,009 up from last week’s 9,124, and 5,959 before that, as the third wave continues to build rapidly in South Africa, with Gauteng’s caseload now at 588,009, up a massive 58,136 individuals in a week.


Mobility data (compiled by Our World in Data) shows a rise in May 2021 on the number of visits and time spent at retail outlets and places of recreation, along with visits to grocery and pharmacy stores and people leaving their homes, tying in with the sharp rise in the third wave.


The google data further shows that there has been a 20% drop off so far in individuals going into workplaces since the third wave began in South Africa, although this was closer to 70% last year in level 5 lockdown.

Indeed, overall physical attendance at workplaces have remained below pre-pandemic levels overall for South Africa, evidencing that many have remained working from home since March last year, typically down by around 20%.


The duration of time people spent at home in level five rose by close to 40% compared to pre-pandemic (February 2020), and currently is rising to 20%, from closer to 10% above February 2020’s level of time in periods from level 3 restrictions with no covid waves.


This shows that South Africans are managing their exposures to others as the waves of Covid-19 wax and wane, and that visits to parks and transit stations (public transport stations) have been curtailed in particular, although responsiveness is to a lesser extent for workplaces.


With individuals better able to control their freedom of choice in deciding on attending parks and using public transport, as opposed to physically being in workplaces, this indicates more individuals would probably choose to work from home than is being allowed. 


Additionally, many visits to grocery and pharmacy stores, as well as places of entertainment and retail outlets are the travels of workers at these places. Nevertheless, there is also indication of a sharp rise in individuals shopping and visiting restaurants etc. versus level 5.


South Africa has vaccinated 2,550,248 individuals (4.2% of its population), up from 1,974,099 a week ago. There is strong evidence of pent-up demand, which will be released into stronger economic growth on approaching herd immunity (75% of the population vaccinated).

Read the full report here

industrial production

Industrial production reflects economic recoveries around the world

24 June 2021


Globally, PMI readings continue to show extremely strong recoveries in manufacturing production

Manufacturing production is ramping up rapidly as the world's leading economies recover from the impact of the pandemic. The resultant higher demand for industrial commodities has seen prices continuing to show good growth, up 83% y/y and 2.1% m/m, with metals prices up 3.5% m/m, 101% y/y (June Economist indices).


Rising commodity also continue to provide support for the rand, despite recent weakness after the US FOMC meeting, which signalled that rate hikes in the US may happen sooner than previously expected. The news spooked markets at first and also saw the rand lose 72c against the US dollar. However, following subsequent placatory comments by the Fed, equity markets began to bounce back and the rand made back 21c.


The rand is very heavily influenced by metals prices, as well as foreign investor portfolio flows and market risk sentiment; the latter being bolstered somewhat last night as Fed chair Powell reiterated the Fed will not raise rates quickly despite inflationary pressures.


The main inflationary impact of higher commodity proces tends is felt in energy and food, both of which moderated in June. The Economist indices show a June drop of -4.0% m/m for food and -5.7% m/m for non-food agricultural prices, which should slow price pressures somewhat in that month, after May’s -2.1% m/m and -7.6% m/m drops. But annual inflation remains high as the basis of comparison is the severely depressed levels experienced at the height of the global pandemic last year.


Overall price increases on a year ago are heady due to these base effects, but strengthening demand has also lifted commodity prices materially, while industrial production for most key economies is at or near historic highs.


June’s global copper users PMI (operating conditions for heavy users of copper) is at its highest level since 2010, with aluminium users PMI seeing the fastest growth also since 2010, as is the steel users’ PMI, with supply chain pressures still a key issue (IHS Markit).


South Africa’s IHS Markit PMI shows production expanded in May, with new orders rising for its manufactured goods, mainly from domestic, as opposed to foreign clients,  while confidence on future output was strong -- the highest in three years. 

Read the full report here

Woman and man in masks at restaurant

Third wave accelerating sharply amidst sluggish vaccine rollout

18 June 2021


Poor take-up among the elderly is a constraining factor in the pace of the vaccination programme.

South Africa’s seven-day rolling average in new Covid-19 cases is at 9 124, well up from 5 959 a week ago and 1 210  at the start of May, as the third wave now builds rapidly, with Gauteng’s caseload now at 529 873, up a massive 40 162 individuals in less than a week. 


The level three restrictions recently imposed are still fairly supportive of both the economy, and the need to foster faster employment creation to support livelihoods, while clamping down on social interactions, with the latter key to limiting the spread of Covid-19.


However, limiting indoor gatherings to fifty and outdoor gatherings to a hundred will still not be sufficient to cease the spread of Covid-19, while many are still not heeding the work from home call whenever possible, which is vital to help to prevent new waves


Indeed, many companies showed strong resilience through instituting work from home processes very rapidly, productively and successfully, from late March last year, and this should be maintained where possible to limit the current wave and help limit future ones.


South Africa currently has vaccinated 1 974 099 individuals with at least one dose, 3.4% of its population, but it remains far from the 40.2 million (two thirds) mark, with only healthcare workers and those over sixty eligible, despite a weak take up of the elderly for the vaccines.


South Africa needs to urgently speed up its vaccination rate, and allow vaccinations for those over forty-five, particularly for all the individuals who work in essential services, and so are necessary for the successful functioning of the economy.


SA also needs the delivery of vaccines to ramp up, with greater available supply and more administration sites with better management, with some individuals reportedly scheduled to obtain their vaccines over the weekend, but often finding sites closed. 


The economy is not going to see a speedy recovery on a slow vaccination rollout process, while micro economic reforms aimed at increasingly closing SA’s economy to international trade, among other DTI proposals, are negatively impacting business confidence.


Increased localisation without sufficient electricity, water and supply of other necessary inputs (with production of many raw materials decreased over the past decade) could see sharp price implications, as well as risk shortages, quality and current jobs and industries.

Read the full report here

covid-19 update

South Africa’s third wave intensifies

11 June 2021


South Africa’s third wave showing a recent, worrying quickening in pace, to growth of 37.2% week on week (w/w), from 21.7% w/w a week ago, in line with the path of the previous two waves of new infections.

South Africa’s seven-day rolling average in new Covid-19 cases is at 5 959, well up from 1 823  a month ago, as the third wave accelerates in severity, with Gauteng still seeing the highest caseload, at 489 711 overall, and up a massive 24 043 cases on a week ago. 


The Western cape is up 3 695 cases to a week ago (298 743 total recorded so far since Covid-19 took hold in SA last year), KwaZulu Natal up 1 898 w/w (overall total 342 291) and the Eastern Cape up 1 161 w/w (to reach an overall total of 199 400).  


The Free State and the North West Province have had jump ups too over the past week, similar to the Western Cape, by 3 226 (to 105 932 cases recorded overall) and 3 171 (to 80 569) respectively, while the Northern Cape rose 2 008 w/w (to 51 782).


The other two provinces are seeing slower increases, respectively Limpopo at 1 026 (taking it to 66 832) and Mpumalanga 1 575 (84 818). Administered vaccinations now sit at 1 619 011 in South Africa, versus 1 193 352 a week ago.


South Africa has managed to get to a 2.7% vaccination rate for its population, after a very slow start from February to April, with May and June so far, seeing a marked quickening, but a quicker start in February would have paid dividends now in lessening the third wave.


South Africa has administered around 700 000 vaccines in June to date, and if this doubles to 1 400 000 by the end of this month, at this pace it would take to the end of 2023 to vaccinate 75% of SA’s 60 million population, the percentage seen to offer the correct level of immunity.


However, we do expect that vaccination delivery in South Africa will be ramped up substantially further, and that we will get to around 2.5million vaccines administered a month if not in Q3.21, then in Q4.21, which means SA could reach 75% immunity by Q3.22.


However, much would depend on quickening SA’s vaccination pace to 2.5m doses, or substantially more delivered a month to achieve this. The mass vaccination rolled out by the private sector needs to be allowed to quicken materially to save lives and reach immunity.


The data now shows that South Africa clearly has technically entered the third wave, and it is likely government may look to more social restriction measures on numbers to aid in flattening the acceleration in the curve.

Read the full report here

business confidence

Improving incomes boost new vehicle dealers, retailers and wholesalers

9 June 2021


The RMB/BER business confidence index (BCI) rose to 50 in Q2.21 - the first neutral reading in about seven years - indicating that business overall is neither depressed nor optimistic about the operating climate.

Surveyed between the 12th and 31st May, businesses faced better economic conditions as a whole, but variability between sectors was pronounced.


New vehicle dealers were particularly positive, their outlook bouyed by a 7.6% m/m lift in sales. Their confidence reading rose to 63 from 35, a near doubling.


Compared to last year, higher reported consumer incomes are expected to have boosted spend in May, with retailers' business confidence now at 54, from 37, also above the break-even mark and into positive territory, while wholesalers saw confidence remain relatively high, at 63. 


In the provinces, businesses in KwaZulu Natal and the Western Cape showed the highest level of confidence, with KwaZulu Natal seeing a phenomenal leap to 77 from 49 and the Western Cape moving  to 51 from 29. However, business confidence in Gauteng was still depressed at 40, showing only a 7 point lift and dragging down the performance of the overall index.  


The business climate overall is deemed to have improved, to 21 from -25, again doubtless on relief at the easing of lockdown measures in the second and third wave relative to the first. Improving household incomes have played a major part, as has the ability of hospitality and entertainment sectors to function. Consumer savings are being deployed and access to credit is improving for higher income earners.


The manufacturing industry, the last of the five sectors surveyed in the business confidence reading, is still in depressed territory, at 46, but materially less so than in Q1.21 when it saw a reading of 25. Manufacturing has benefited from increased local and foreign demand, with broad-based production lifts across virtually every sub-sector. However, raw material shortages were reported as key constraints, along with other supply chain bottlenecks and delays, similar to the international experience.This shows the imperative of resolving domestic supply chain requirements before embarking on an increase in localisation, as virtually all sub sectors across the manufacturing industry are already reporting shortages of key inputs to their processe


Load shedding is also a key constraint. Insufficient electricity supply to meet demand is likely to worsen in June. More broadly, increased economic activity puts additional strain on public utiities, including water. Absent a resolution to SA’s public infrastructure capacity, the move to localisation will only exacerbate the shortage of raw material inputs, with many areas already evidencing insufficient water supply for their needs. Additionally, water, electricity and other state-administered price increases would reduce the competitiveness of the domestic manufacturing industry, as would tariffs on key imports needed in South Africa’s supply chains.


The global shortage of semiconductors is negatively impacting the stock of new vehicle dealers and retailers of appliances, as sales of these durables and semi-durables continue to outshine those of non-durables (such as food) as consumers adapt to shifting patterns of work and entertainment at home.


Poor business conditions in the building sector have also been impacted by a collapse in demand for office space, while the residential sector continues to see more refurbishment and additions to homes.

Read the full report here


What better-than-expected GDP figures mean for SA's fiscal outlook

8 June 2021


The strong 4.6% lift in Q1 GDP could raise the overall 2021 GDP outcome to 5.0% y/y, if not above, while longer-term, government’s gross loan debt could peak significantly lower.

GDP growth and fiscal outlook note: today's strong 4.6% qqsaa lift in GDP could raise the overall 2021 GDP outcome to 5.0% y/y, if not above, while longer-term, government’s gross loan debt could peak significantly lower.


Today’s Q1.21 GDP outcome shows a 4.6% lift quarter on quarter, seasonally adjusted, annualised (qqsaa), as particularly strong growth surprised on the upside, and could lead to growth for 2021 of around 5.0% y/y if load shedding does not worsen.


The first quarter figure completes the nominal GDP growth outcome for the 2020/21 fiscal year, and with GDP significantly stronger than national treasury forecast, has a number of impacts on the consolidated budget figures presented in February.


Primarily, the expected lift in gross loan debt as a % of GDP for 2020/21, to 80.3% from 63.3% of GDP in 2019/20 published in February’s Budget, now instead comes out at 79.1% of GDP, while the borrowing requirement sits at 15% of GDP instead of 15.2% for 2020/21.  


The budget deficit also contracts, to -13.8% of GDP, from the -14.0% of GDP projected in February, resulting all round in some likely tightening (improvement) in the government finance figures previously estimated for 2020/21 at the February 2020/21 Budget. 


The improvements are slight, but with an outcome now more likely closer to 5.0% y/y for real GDP growth in 2021, the higher nominal GDP outcome for 2021 than previously expected could potentially see 2021/22 gross debt at 80.1% of GDP instead of 81.9%.


However, this outcome is only possible if government keeps to reduced weekly issuance, or even lowers it further, and does not give away these incremental gains in the right direction for fiscal consolidation by failing to stick to expenditure constraints on government wages. 


If so, the budget balance (deficit) could come out at -9.1% of GDP for 2021/22 instead of -9.3% of GDP, and the borrowing requirement at 10.3% of GDP instead of 10.5%. However, again very strong constraint on expenditure is continuously needed.


SA has seen key gains in GDP’s mining sector in Q1.21 on the strong commodity prices, along with low interest rates which have boosted sales of residential property and building materials, as have work from home and stay at home trends in the face of COVID-19.


Looking forward, gross loan debt in 2022/23 is estimated at a large 85.1% of GDP but could come out instead at 82.4% of GDP if government sticks to, or lowers, planned expenditure, and revenues come in as expected or improve, with real GDP growth of 2.0% in 2022.


Strengthening real growth out to 2025 (to 3.0% y/y) would continue incremental gains, but also the compound effect, with 83.4% of GDP for gross debt instead of the current projected 87.3% for 2023/24, if the gains are not wasted by raising expenditure above current plans.


For 2024/25 and 2025/26 this implies gross debt peaking closer to 84%, instead of at 88.5% and 88.9% respectively. Such gains, which would reduce the likelihood downgrades, can only be made with the current planned severe fiscal constraints on expenditure.

Woman and man in masks at restaurant

South Africa’s third wave gathers momentum

4 June 2021


Medical experts are divided on whether the third wave of Covid-19 infections will peak above or below the first two. Meanwhile, shifts in consumption patterns have implications for inflation.

South Africa’s seven-day rolling average in new Covid-19 cases is at 4 342, from 3 568 a week ago and 2 849 two weeks ago, as the third wave continues to build, while vaccinations have now exceeded the one million mark, at 1 193 352. 


South Africa has managed vaccinate 2% of its population. Following a slow start since February, May has seen a rapid increase in the pace of vaccinations. However, even at the rate of close to 900 000 vaccines administered in May, it would still take until the end of 2024 to vaccinate 75% of SA’s 60 million population.


While South Africa is planning to ramp up its vaccine rollout, the delay in the J&J vaccine's arrival - due to a factory error in the US impeding regulatory clearance - is a significant setback. Currently, only the two-dose Pfizer regime is in use, and this is deemed unsuitable for rural and outlying communities because it is more difficult to administer and store.  


Vaccination registrations for the over sixty age group are reportedly sitting at a low level of around 50%, and there is a strong likelihood that younger age groups will soon be eligible to receive vaccines via business-supported programmes initially targeting those forty years and over.


The Director General at the Government Health Department is reported to be looking at vaccinating the country’s work force in stages, with particular focus on those in education, civil servants, the electricity sector, those working in transportation and agriculture. 


But despite these efforts, South Africa’s slow vaccine rollout has allowed the third wave to take hold, with many now working from home again where possible, resulting in the ongoing shift in consumption patterns.  


There continues to be lower consumption levels overall compared to a year ago for most sectors, but a reorientation towards home-based entertainment and working has seen gains in some retail sales sectors, particularly household furniture, equipment and appliances.   


The sharp shifts in consumption patterns, i.e. changes in the weights of goods and services in the basket households consume, have implications for the reweighting of CPI domestically, following similar global precedents, with inflation potentially having been underestimated over 2020.

Read the full report here

Economic growth south africa

Quickening in global growth sees positive knock-on effects for SA

1 June 2021


2021 is now likely to see an economic growth outcome of 3.9% y/y instead of the previously expected 3.2% y/y.

Incoming data indicates 2021 will likely see an economic outcome somewhat higher, at 3.9% y/y, than the previously expected (3.2% y/y) as global recovery and the marked strength of commodity prices benefits SA’s exports, with other areas in SA’s GDP also gaining traction.


The global recovery has spurred rapid growth in commodity prices, both on expectations of future demand, and on strengthening industrial activity, as many PMIs approach or exceed previous highs globally, although there is also significant evidence of stronger cost pressures.


The Eurozone manufacturing PMI is at a high (data since 1997) with Italy, the Netherlands, Ireland and Austria specifically at highs, and Spain, Greece and Italy nearing their previous strongest performances, evidencing increasing demand, positive for commodities’ prices.


UK manufacturing PMI, also at a record high yesterday, saw the IHS Markit/CIPS highlight that “new orders rose at the quickest pace in the near three decade survey history” with “reports of stronger demand from the EU, the US and China”.


However, “backlogs of work … are rising to the greatest extent in the survey history”, while in Germany its manufacturing sector is being constrained by “worsening supply chain disruption” while “delays in the receipt of inputs reached a new record high”.


“Surveyed business continued to report increased demand both domestically and abroad, though at the same time there were several mentions of shortage-related downtime at customers weighing on intakes of new work” (IHS Markit/BME German manufacturing PMI).


Indeed, such has been the ascent in demand, evidenced by new orders, that supply chains have not been able to keep pace, but this does show continued support for commodity prices, positive for SA along with the severe strengthening in global demand.


Australia’s manufacturing PMI (from IHS Markit) also at a record level, again showed “(s)trong demand, supported by foreign customers” which also “encouraged firms to expand output further and sustain hiring at a record pace”.


While we revised up our 2021 SA GDP forecasts to 3.9% y/y (and the Bloomberg consensus is close at 3.8% y/y), there could be some further upside risk to our view, given the strength of the PMI figures flooding in today globally, and the improving pace of global vaccines. 

Read the full report here

covid-19 update

Pace of vaccinations increases but tighter restrictions anticipated in June

28 May 2021


SA’s seven-day rolling average of new Covid-19 cases is at 3 568, up from 2 849 a week ago

Covid-19 update graph

The third wave could be more moderate than the second according to the South African Covid-19 Modelling Consortium (SACMA), which also expects a lower peak than in the second wave, assuming that no new, more contagious, variants emerge.  


Health Minister Mkhize is reported to have warned yesterday that some of the provinces are in the third wave, with “the numbers rising again in the various provinces; mainly Gauteng, the Northern Cape, Free State and the North West.” 


“If we maintain this trajectory, the whole country will be similarly declared," the minister continued. "We therefore need to continue to adhere to non-pharmaceutical interventions and continue to increase our vaccination efforts."


The mass vaccination rollout is well underway, although shortages of vaccines is the limiting issue, with government retaining control of procurement and only those over 60 and healthcare workers eligible to receive the shots so far. Vaccinations have now reached 828 204 people, up from 597 406 a week ago.


The still relatively slow pace has called into doubt SA’s ability to vaccinate two-thirds of its population by the end of the year -- a target that would be achievable with full, professional private sector involvement if procurement volumes were not a binding constraint.  


SACMA has said that “across all age groups, hospital admissions are expected to be lower than levels in the 2nd wave," adding that the time from initial increase in transmission to the peak is, on average, 2-3 months.


Nevertheless, tighter lockdown restrictions in June are on the cards. But these will likely be focused on regulating social behhaviour through curfews, alcohol restrictions and the like, thereby avoiding  severe economic impact as the recovery takes hold. We are currently forecasting GDP growth of around 3.9% for the year.

Read the full report here

social distancing

SA sees third wave building as economy remains highly sensitive

21 May 2021


Seven-day rolling average of new Covid-19 cases doubles, but another harsh lockdown is unlikely

The economy contracted by an unprecedented -17.8% y/y as a result of the lockdown  in the second quarter of 2020. 


The high sensitivity of businesses, and consumers, to lockdown restrictions has exceeded expectations and imposing further harsh restrictions now would severely exacerbate the high fragility of the recovery. For this reason we do not expect any such moves by government. Levels 4 and 5 are likely to be avoided, and even level 3 is likely only in a light version.


In the second wave, SA moved to level 3 around 12 000 cases a day on a 7-day rolling average, but as this happened later than anticipated, it contributed to a less severe Q4.20 GDP outcome than originally forecast, and a lessor contraction of -7.0% y/y for 2020. 


SA is below 3 000 cases a day on a 7-day rolling average currently, at 2 822, and is not showing a steep climb either in this average. Increasing restrictions severely in the near future would be very pre-emptive, choking off promising economic and employment recovery.      


SA has administered 597 406 vaccinations so far and has not completed its phase 1 of covering 1.25 million frontline healthcare workers, but has embarked on a portion of phase 2, beginning vaccination of those over 60 (5 million) and of healthcare workers more broadly.


South Africa has almost vaccinated 1% of its population, which is still a very slow outcome, exceeded by most EM countries and many African countries, and so is a threat to economic and employment recovery, as it exposes SA to further waves and lockdown restrictions.

Read the full report here

Commodity currencies hero image

Commodity boom isn't the only force boosting the rand

20 May 2021


Resource prices explain some of the currency's recent gains, but incremental improvements in domestic fundamentals are also playing a role

The rand's gains this year are outpacing the currencies of both emerging market peers and other commodity-driven economies. There are a multitude of drivers behind the currency's rally; among them, risk-on sentiment in global financial markets and the strength of commodity prices. But the outlook has also brightened on small but steady improvements in the structure of South Africa's economy.


We continue to forecast a reform-led economic recovery that should improve exposure to global growth, with domestic GDP rising from 1.5% y/y in 2022 to 3.0% y/y by 2026. This year is likely to see a statistical rebound of between 3.0% to 4.0% y/y, after 2020’s -7.0% y/y drop.


Major structural challenges and constraints to economic growth remain, including limitations on electricity and water supply, inadequate transport systems and an onerous bureaucracy. However, small improvements in these areas in recent months have proven that quicker reforms will lead to accelerated growth.


The blueprint for faster economic growth and higher levels of employment and incomes is clearly laid out Project Vulindlela, the joint initiative of the Presidency and Treasury to "fast-track the implementation of high-impact reforms, addressing obstacles or delays to ensure execution on policy commitments." The need could not be more urgent, following the slow pace of implementation since 2018 and the marked deterioration of much of the 2010s.


While growth prospects have brightened, financial market investors may also be feeling somewhat more comfortable after SA's handling of its bond market rout a year ago, as well as improved fiscal plans on revenue figures that exceeded those forecast in the Medium-Term Budget Policy Statement (MTBPS). In particular, investor confidence has been bouyed by the reduced government debt projections, aided by the 2020/21 corporate tax-led revenue overrun, as well as the drop in weekly bond issuance. But markets will still be watching intently to see if fiscal consolidation is indeed achieved.


The attention of the capital markets will also be trained on efforts to bring to book corrupt, high ranking political figures who were, until recently, deemed untouchable. Recent signs of progress on key prosecutions have no doubt contributed to the rand's momentum.


It should be noted, however, that not all proposed reforms in SA are market-friendly, with some, such as the contentious introduction of land expropriation without compensation, harking back to the prior regime’s populist agenda.


As the heady mix of domestic policy, global market events and commodity prices continue to impact its fate, the rand will remain volatile. But, for the first time in recent years, the currency's longer-term trajectory might just be looking up.

Read the full report here

production image

Production lift will push GDP growth into positive territory

14 May 2021


Q1.21 lift will push GDP growth into positive territory as expected, but also add to the mixed picture, with a number of key data readings outstanding while Fitch has SA’s rating unchanged.

industrial production graph

Yesterday's mining production print, at 3.8% qqsa (quarter on quarter, seasonally adjusted) completes the picture for Q1.21 industrial production, which rose by 3.5% qqsa in Q4.21, and so will make a fairly strong, positive contribution to overall Q1.21 GDP.  


Industrial production makes up 21.5% of GDP, consisting of the sub-sectors manufacturing, mining and electricity production. However, the largest sub sector in GDP is real estate, business services and finance at 21% followed by general government at 16.3% of GDP.


General government expanded consistently in size over the 2010s decade, with the heavy cost of staff wages, as civil servants renumeration grew rapidly in the 2010s, the key component in the marked deterioration of government finances on the expenditure side. 


Fitch still has SA on a negative outlook, stating this week that “payroll and SOE reforms will be crucial for fiscal consolidation. Compensation of public-sector workers accounts for a large share (around 35%) of government expenditure.” 


“Ongoing negotiations on a new wage deal are likely to be difficult and the government is unlikely to meet its target of agreeing on a wage freeze , leading to the risk of expenditure overruns. …. The conditions for debt stabilisation are challenging”.  


“The Land Bank default last year and the difficulties of electricity monopolist Eskom Holdings SOC Ltd highlight the risk from contingent liabilities from SOE’s high debt and weak finances.” These elevate SA’s planned peak in debt, and it remains on BB+ with a negative outlook.


Both Fitch and Moody’s ratings are unchanged so far this year, with the negative outlooks retained, but Fitch worries on “further deterioration in South Africa’s trend GDP growth rate” and highlights that SA has been through an “exceptionally tough lockdown”.


Fitch comments that “the government is working on structural reforms to accelerate the economic recovery, but the scale envisaged is limited and recent record of implementation is weak so that trend growth is likely to remain very weak, below 2%”.


While we expect economic growth to quicken to 3.0% y/y out to 2026 on structural reforms, Fitch appears to see less of a positive trajectory, showing concern that “divisions within the ruling party (have been) hindering policy-making”, or essentially implementation.

Read the full report here

SONA preview

SONA Preview: SA edges towards a financial precipice

9 February 2021


The 11 February State of the Nation Address (SONA) comes at a critical moment in South Africa's recent history. Unless government articulates a more business-friendly policy agenda and demonstrates real progress in achieving the goals of the ERPP (Economic Reconstruction and Recovery Plan), the country's financial future looks dire indeed. 

gdp growth graph

Government’s latest growth plan, the ERRP, has seen few short-term goals achieved since its unveling in mid-October. Progress has been mainly diagnostic: establishment of committees, funds and (perhaps counter-productively) increased state employment. 


SA is likely to see economic growth of 2.9% y/y in 2021 as it rebounds from the -7.3% y/y collapse of last year. This muted recovery has been accompanied by an unsustainable expansion in government borrowings and a widening fiscal deficit. Planned government borrowings for 2021/22 sit at R4.6 trillion (86% of GDP), and are forecast to reach R5.5 trillion by 2023/24 (93% of GDP) and 95% of GDP by 2025/26. As these ratios deteriorate and SA sinks deeper into a debt trap,  lower credit ratings are all but guaranteed. The slide towards C-grade categories reflects concerns about a rapidly increasing risk of default. SA’s credit ratings are likely to fall into the single B grades this year already. 


The only way out of this trap is inclusive economic growth. Failure to achieve (as opposed to simply plan) rapid economic growth and cut state expenditure, is now critical to avoid financial collapse. This requires policies that promote private and public sector investment in productive infrastructure and a curtailment of unproductive expenditure on inflated public wages and inefficient SEOs.


On a more basic level, a key factor in SA's failure to achieve sustainable economic growth is the alarming fact that doing business in South Africa is becoming more difficult, not easier. 


With the pace of regulatory reform lagging other economies in the developed and developing world, SA is becoming less competitive as a destination to set up shop or commit fixed investment. The result is lower employment, lower tax revenues and a negative growth spiral. 


Furthermore, the World Bank’s  2020 Doing Business report says “inefficient regulation tends to go hand in hand with rent-seeking. There are ample opportunities for corruption in economies where excessive red tape and extensive interactions between private sector actors and regulatory agencies are necessary to get things done.” This is particularly true of both South Africa’s onerous regulatory environment and its high levels of corruption. South Africa lacks true, unified outrage against corruption."


The 20 worst-scoring economies on Transparency International’s Corruption Perceptions Index average eight procedures to start a business and fifteen to obtain a building permit. Conversely, the 20 best-performing economies complete the same formalities with four and eleven steps respectively. Moreover, economies that have adopted electronic means of compliance with regulatory requirements— such as obtaining licenses and paying taxes—experience a lower incidence of bribery. It's clear that South Africa needs to shorten the time taken to start a business.


Hopefully the president's address will go some way towards reassuring South Africans that government is alive to the dramatic benefits that can accrue from creating an environment that is more attractive to doing business, and to the dire consequences of maintaining our current slide towards the cliff edge.

Get all Investec's insights on the latest Budget Speech and SONA

Our economists, tax experts, personal finance and investment experts unpack what the latest fiscal measures mean for income, savings and daily expenses of individuals and businesses.

Read the full report here

SA economy

January lockdown restrictions have not harmed SA's 2021 growth outlook

2 February 2021


Amended level 3 lockdown restrictions in January should not harm the 2021 growth outlook, unless further restrictions are applied, which is unlikely.

divergent recoveries graph
The seven-day rolling average of new cases of COVID-19 infections in South Africa has slowed to 5 539 individuals, from its peak in the current wave of 19 042. A downward trend has been maintained, now well below the peak of the first wave, with 2 548 new cases a day.


New daily COVID-19 infections at the origin of the second (current) wave have declined noticeably (Nelson Mandela Bay), and further afield, with SA’s fatality rate moderate due to its youthful population. The rand reached R14.89/USD today as new daily cases moderated.


Level 3 restrictions have been eased somewhat, with alcohol sales allowed Monday to Thursday 10am to 6pm, onsite consumption of alcohol at licenced venues from 10am to 10pm and the sale of alcohol from wine farms, micro-breweries during normal operating hours.


Furthermore, all beaches, dams, rivers, parks and swimming pools are now open, with social distancing and health protocols, and gatherings remain limited to 50 indoors, 100 outdoors, not exceeding 50% of capacity. However, SA remains at risk of a third, and even fourth wave.


While South Africa is expected to begin administering vaccines this month, if in limited quantities, it will still be many months before the entire two thirds proportion of the population is covered, and so before social distancing and economic restrictions can fully ease.


The progress towards herd immunity (two thirds of populations fully vaccinated, including likely all the elderly, vulnerable and health care workers/other essential services) generally is slow, with the US only vaccinating 10% of its population so far, and the UK 14%.


In South Africa 1.5 million doses of Oxford-AstraZeneca for health workers have arrived and it is reported that SA is securing another 20 million from Pfizer, 12 million from COVAX, 9 million from Johnson & Johnson, reaching 40 million in total. 


Domestic economic growth will depend heavily on the degree of the regulated lockdowns on economic activity, and the necessity to substantially ease the regulatory burden on private sector businesses, while lifting civil servants’ productivity.


Economic activity is expected to rise by 2.9% y/y this year, but the deep scarring the domestic economy has already experienced from the harsh regulated shutdown of economic activity last year is likely to be persistent until 2024 in real terms.

Read the full report here

mboweni sa economy

Tough times ahead for SA economy

25 June 2020


The 2020 Supplementary Budget Review projects a sharp deterioration in government debt. if SOE contingent liabilities are included, SA's debt:GDP looks set to grow to around 100% by 2023/24, with further ratings downgrades on the cards.

Wednesday's Supplementary Budget Review shows that this decade is expected to begin with a massive plunge in the health of government finances, with a fiscal deficit of -14.6% of GDP and gross debt as % of GDP of 81.8 projected for this fiscal year, versus the previous projections of a fiscal deficit of -6.8% of GDP and debt at 65.6% of GDP for 2020/21. 


The rating agencies are likely to downgrade SA further on the back of this budget, as the key objective of any credit rating agency is to assess the ability of a country (or corporate) to repay its debt, and with SA now signalling that its debt burden will rise to 87.4% by 2023/24 this has deteriorated SA’s ability to repay its debt.


It is not possible to continuously borrow out of debt, nor to indefinitely borrow to make debt payments, and fund current expenditure. Debt interest payments do have to be made to avoid default. SA is on a negative outlook from Moody’s, at Ba1 (BB+). The rating agencies will likely downgrade SA after the budget, if not in November 2020, then sooner. 


Some limited positive news emerged from the adjusted budget today, and that is the announcement that SA’s debt is projected to peak at 87.4% by 2023/24, as opposed to pre-budget ‘leaks’ that SA’s debt is further estimated to rise to 90.9% by 2023 and over 100% by 2025, climbing to a massive 113.8% by 2029.


However, SA has been falling though the credit ratings increasingly quickly, and is at BB from Fitch (for both its foreign and local currency ratings), while from Standard and Poor’s SA’s local currency rating is BB but its foreign currency (country) rating is BB-.  The next step after BB- is single B, followed by the C grade ratings and then D, for default.


While SA projecting a peaking, and hence stabilisation of debt is positive, it will not be enough to avoid SA being pushed into the single B credit rating categories over the course of the next few years, with 87.4% still a huge figure for an emerging market’s government debt, and one which does not tally with debt sustainability.


This is particularly because the credit rating agencies tend to look at SA’s debt in conjunction with that of its guarantees that it has extended to the State Owned Entities’ debt, and the calculation, when including all these contingent liabilities takes the figure to around 100% of GDP by 2023/24. 


The biggest risk SA faces in its massive quantum of debt issuance is investor appetite, which, while strong will not last forever. SA will likely run out of space in the domestic market, which is the biggest absorber of SA’s government debt, as SA has a limited quantum of savings, which have been used to mostly fund government issuance so far.


Furthermore, government is increasingly eyeing private sector savings to fund its infrastructure projects, via prescribed or voluntary assets, with pension funds already a very large holder of state debt.  The huge ramp up in projected debt and issuance is at odds with the limited savings pool in SA, and will add to pressure for further credit rating downgrades. 

Read the full report here


Economies open as Covid-19 infections rise


5 June 2020


The impact of the Covid-19 crisis is deepening poverty, hunger and unemployment around the world. The  opening up of economies continues, but recovery will be impeded by lagged effects

This week the number of confirmed cases of Covid-19 have exceeded 6 million globally, at 6.4 million versus 5.6 million a week ago, while the number of deaths are at 382 867 versus 353 334 a week ago. With the epi-centre of Covid-19 now in Latin America, the region also faces an economic and health crisis from the effects of the spread of the pandemic.


Latin America suffers from substantial inequality, with weak public finances and fragile health systems. In Brazil Covid-19 cases and deaths are surging, while politically the country is seen to be becoming more unstable, suffering also from poor responses to the crisis, with GDP contacting by -1.5% y/y in Q1.20 and expected to drop a further – 9% y/y in Q2.20. 


The number of Covid-19 cases in Brazil are around 600 000, with above 30 000 new cases a day now in a population of just above 200 million. Chile (population 19 million) and Argentina (45 million) are seeing fewer confirmed cases but are smaller populations, with their respective Covid-19 reported infections approaching 120 000 and respectively 20 000.  


Chile’s economy contracted by -14% in April, and prolonged lockdown measures are expected to see a deeper contraction in May and June, with the country also suffering from social unrest. In Argentina economic activity fell 11.5% in March, with worse expected in Q2.20, and it defaulted on a US$500m payment, and is in restructuring talks with bond holders.    


In Columbia, Covid-19 cases are around 30 000 with a population of 50 million, with its government lifting restrictions incrementally, while its economy is seeing very depressed consumer sentiment and its manufacturing sector also having shown deep contraction.


Mexico is at around 100 000 cases (population 129 million), and is expected to see the deepest recession in Latin America, of -13.0% y/y in Q2.20, -9.2% y/y in Q3.20, -6.6% y/y in Q4.20 and -4.2 y/y in Q1.21, after contacting by -1.4% y/y in Q1.20. The lockdowns in the US are also negatively affecting activity in Mexico. 


In South Africa, there are 40 792 confirmed cases of Covid-19 to date, with 848 deaths, as the country with a population of 59 million is expected to see a deep recession this year. Public opposition to the lockdown restrictions are rising sharply, while incomes fall and a survey on hunger shows an increase from 4.3% to 7.0% in respondents.


The survey from Statistics SA, on the impact of Covid-19 on employment and income in South Africa, conducted between 29th of April and 6th May, with no updated report published yet, also shows that “the percentage of respondents before who reported no income increased from 5.2% before the lockdown to 15.4% by the sixth week of national lockdown”.


Many individuals in South Arica are using savings, UIF payments, loans from family and friends, investments and social payments other than the UIF to survive, but all these sources of income will be eroded, and without a rapid opening up of the economy, will see more sink into deep financial hardship and so retard the recovery of economic growth later this year.

Read the full report here

Business cycle

Impact of lockdown on GDP


26 May 2020


GDP is at risk of contracting by between -8.0% y/y and -10% y/y, if not worse this year, on the lengthy, severe lockdowns

March 2020’s leading business cycle indicator, released today by the Reserve Bank, lifted to 104 from 103.3 in February. The around six-month lead (between the leading indicator and GDP growth) indicates that with Q1.20 at 103.4, down on Q4.19’s 104.0, Q4.20 GDP would be on track to see a contraction.


However, the data used was for Q1.20 and does not capture the worsening conditions of the extended lockdown, globally or domestically. With the lengthening of the lockdown (May level 4, June level 3), from April’s virtually total shutdown of level 5, Q2.20 GDP could see a sharp contraction of around -50% qqsaa or worse, while Q3.20 is likely to see less of a rebound than previously anticipated.


With the current progression of one month for each level, July and August will see some continued restrictions on economic activity, and the recovery in Q3.20 is likely to be much more subdued than originally thought. Instead of a rebound of 40% qqsaa in Q3.20 it could instead be around 15% qqsaa.


Furthermore, it is not certain that the levels will see a linear monthly progression, levels could go up as well as down, while companies themselves are at risk of temporary closures if infections occur.


The use of the Q1.20 leading indicator (released today) as a pointer of future business activity has been dramatically diminished by the impact of the Covid-19 crisis.


We previously expected economic growth of -4.8% y/y for 2020, but now believe it could come out closer to between -8.0% y/y to -10% y/y, if not worse. Much will however depend on the progression of opening up the economy. The very slow pace so far has driven our worsening forecasts, as has the sheer length of the lockdown to date, which has seen incomes fall (both due to rising unemployment and firms cutting back on staff renumeration versus last year), and demand to collapse.

Read the full report here


MPC preview


19 May 2020


Interest rates are likely to remain lower for longer in South Africa, at this week’s MPC meeting a small rate cut is likely

South Africa has seen a 2.25bp cut in interest rates this year, 200bp in direct response to the impact Covid-19 has had on the economy and financial markets, as the crisis deepened. The first cut, of 25bp in January, was in response to the recession SA had fallen into in the second half of last year, given that inflation was subdued into the target range close to the midpoint, and expected to remain there over the forecast period.


Indeed, this year we expect CPI inflation will come out at 3.4% y/y, and at 4.1% y/y in 2021, although we believe the risks are for even lower outcomes. At the last MPC meeting, the emergency meeting in April, the MPC forecast CPI inflation at 3.6% y/y for this year and 4.5% y/y for next year, but we believe these forecasts will be lowered at their meeting this week, to closer to 3.4% y/y or below for this year, and to closer to 4.0% y/y for next year. 


This week’s MPC meeting is likely to see a further downwards revision to the Reserve Bank’s GDP outlook, particularly for 2021, as the lockdown is proving lengthy and severe. We expect however that the SARB (South African Reserve Bank) will not engage in another large (100bp) cut in the repo rate this week, preferring instead to preserve some room to implement further easing later in the year, should conditions worsen even further.


We expect that the MPC will deliver a modest cut of 25bp this week, but there is a possibility it chooses to keep interest rates unchanged, giving the immensity of the cuts at its last two meetings. Keeping its powder dry by leaving rates unchanged or providing only a small, 25bp cut, in the face of a potentially much larger contraction in GDP than is currently widely expected would allow for more support later.


GDP risks contracting by closer to -10% y/y to -15% y/y this year due to the very slow reopening of the economy that is occurring, and the extreme nature of the lockdown. South Africa has seen one of the most severe economic lockdowns globally, and its lengthy duration (with level 3 now only expected by June)  will likely see the domestic economy contract by closer to -10% y/y to -15% y/y this year. 


Interest rates are likely to remain low for a lengthy period of time, as the economy will not recover in Q3.20,  nor will it recover in Q4.20, or in 2021. Many years of growth will have been wiped off GDP and it will be a slow lengthy process to rebuild. Unemployment risks rising to 50% next year. From an inflation point of view, the SARB is in no rush to hike interest rates. 


The uncharted territory South Africa and the rest of the globe is in has created enormous uncertainty.  In South Africa the government has warned that levels will be raised if necessary (the lockdown intensified) which would severely worsen the GDP outcome. Covid-19 has not yet peaked in SA and it is quite a while before it is expected to do so.

Read the full report here


More job losses as lockdown continues


15 May 2020


The pace of South Africa's Covid-19 ratio of deaths to infections slowed substantially from mid-April, with lockdown restrictions only seeing some relatively mild easing, while job losses shoot up 

The pace of South Africa's Covid-19 deaths to infections ratio slowed materially from mid-April, both in terms of new infections and deaths, and total deaths and infections. Lockdown restrictions have only seen relatively mild easing while job losses shoot up. Experts on Covid-19 have warned it will be impossible to eliminate the virus.


South Africa’s low fatality rate, below that of the global rate, reflects also a low infection rate, but even with the extremely severe lockdown the country has been under (one of the most severe in the world), the virus has spread, and will continue to spread, with global evidence now warning it will become endemic, and is unlikely to be eradicated.   


A vaccine is deemed unlikely this year, and herd immunity (when over 60% of the population has had the disease) is the most likely path. Studies have observed that the number of deaths globally are likely to be lower than expected. It is well reported that children under 18 have an extremely low likelihood of the disease, especially death from it.


Experts have said that the spread of the disease is impossible to prevent. Global figures have shown that Covid-19 tends to cause essentially no symptoms in around 70% of cases, while around 25% of cases show mild symptoms, and the remaining 5% (typically the elderly or those already severely ill before Covid-19) see severe symptoms with a risk of death.


South Africa continues to see a very cautious approach to lifting its economic lockdown restrictions, while the damage caused to the economy is ramping up. South Africa has yet to see level 3 reached, and the circulation of money has collapsed, with the companies that are open (recently surveyed at over 50%) still seeing turnover negatively impacted.


South Africa's severe, lengthy lockdown could see the economy contract by more than expected in 2020, closer to -15% y/y than the latest consensus estimate of -6.4% y/y (Bloomberg) if the very slow pace of opening up persists. This would cause formal unemployment to escalate more rapidly, risking a rise ultimately beyond 50%.


South Africa’s Covid-19 infections are still on an upwards trajectory, while a number of other countries have seen cases of new infections peak. However, globally there are now concerns of a second round of infections, or even of multiple waves of infections, driving the globe inevitably towards herd immunity.


Around the world the impact of restriction measures in the face of Covid-19 has had a severe, dire impact on economic activity, employment and so livelihoods. South Africa has been at the pace of one level of lockdown a month but the economy is in the process of losing several years of development and will not recoup these losses in the medium-term.


The incoming data on April, the first full month of lockdown and the most severe period of lockdown to date, has shown that electronic bank transactions in the economy, which is reflective of business activity and the circulation of money, is at a fourteen year low in real terms (removing the distorting effects of inflation) – BankservAfrica data.

Read the full report here


SA economy expected to contract 


8 May 2020


A meaningful recovery from recession, globally and domestically, will depend on the rapidity of exit from lockdown restrictions, broad based support measures and for SA particularly, a substantial easing in red tape

Globally, the advent of the easing of lockdowns turned attention to the prospects for economic recovery, boosting some financial market sentiment. However, a slower than hoped for pace of easing of restrictions would disappoint markets, and a return to temporary risk-off is not unlikely, particularly if a second wave of infections/ lengthening of lockdowns occur.


Economic expectations of the impact of Covid-19 on the global economy continue to adjust, with economists slightly less pessimistic about the global economic outlook than a week ago according to the latest Focus Economics survey, but risks are still seen as heavily skewed to the downside.


In South Africa, low survey responses are hampering hard data collection. The economy is expected to contract by -36.2% qqsaa in Q2.20 (Investec forecasts -37.1% qqsaa or -12.1% y/y), with business sentiment already depressed over the past decade, with economic growth weakened by poor state governance and a rapidly rising quantum of red tape.  


The latest Bloomberg economic consensus show’s SA’s GDP contraction this year forecast at -5.0% y/y (Investec -4.8% y/y). However, we now expect there is a rising chance that SA will see GDP growth contract by more than -6.0% y/y in 2020, as government’s pace of easing the restrictions on the South African economy is proving to be extremely gradual.


Already a report from BankServ (the largest automated payments clearing house in SA) analysing actual transactions, shows that in the thirty-eight days to the 3rd of May 2020 (since lockdown began on 26th March 2020 in SA) daily transactions are down sharply, by 49% after peaking in March, as consumer spending plummets.


Specifically, “consumer transactions were down by half of the usual transaction volumes tracked by BankservAfrica’s Point-of-Sale (POS)* and ATM transactions over the corresponding period in 2019”. “April’s month-end was 48% below the norm”, and the “drop in the month-end transaction volumes between March and April was 58%”.   


BankServ highlights that this “reflects a slower start to the April pay month so far. The actual same period in 2019 had a 20% increase in transactions.” “This is a far cry from the average daily spend by consumers that is usually higher at the start of the pay month.”


Cheeringly, “indications so far suggest May 2020 will also be below the norm.” “However, since 1 May 2020, when level 4 restrictions were applied, the average number of transactions processed by BankservAfrica increased slightly to 58% of the usual transaction spend”, proving “a glimmer of hope for a gradual increase in spending over time.”


As lockdown restrictions are eased further, with businesses hoping for level 3 restrictions to come sooner rather than later, the circulation of money in the economy is likely to see some further impetus, but consumer confidence will have been severely repressed in Q2.20, with lockdown also largely eliminating expenditure on big ticket items and many luxuries.

Read the full report here


Another downgrade for SA


30 April 2020


Standard & Poor's downgrades South Africa to BB- from BB (foreign currency rating) with a stable outlook, and drops SA to BB from BB+ on its local currency rating (stable outlook), as SA falls further down the rating ladder 

The onslaught of improved risk sentiment largely overrode the impact of last night’s S&P’s downgrade on the rand. Further credit rating downgrades for SA are still possible, given also ongoing political obstructions to necessary structural reforms (particularly a massive reduction in regulations and red tape) to prioritise sustained, rapid economic growth rates.


Specifically, yesterday evening Standard & Poor’s lowered South Africa’s credit ratings once again, with the foreign currency rating on the sovereign’s long-term debt falling to BB- from BB, with a stable outlook, and the local currency rating on SA’s long-term debt fell to BB, from BB+, also with a stable outlook.


S&P highlighted that “South Africa's already contracting economy will face a further sharp COVID-19-related downturn in 2020” as “the broader economic fallout will be very difficult to handle, and South Africa entered the crisis from a weak fiscal and economic position.” ”The appreciably weaker macroeconomic environment will also weigh heavily on … fiscal revenues”.


S&P adds, “(i)n the second half of 2019, the economy shrank, due partly to a set of severe rolling power blackouts. The COVID-19 health crisis will create additional and even more substantial headwinds to GDP growth, owing to a strict five-week domestic lockdown, the markedly weaker external demand outlook, and tighter credit conditions.”


“As a result, we now project the economy to shrink by 4.5% this year compared with our November 2019 estimate of growth of 1.6%.” ” A proactive policy response, including South Africa's decision to go into a strict lockdown relatively early, has so far limited the health impact of COVID-19. Early gains in tackling the virus will be built upon”. 


Early this morning the rand did weaken briefly to R18.23/USD, R19.81/EUR and R22.70/GBP in response to S&P’s downgrade as the country’s ratings fall closer to C grade. South Africa’s R800bn Covid-19 relief is expected to place great strain on government’s finances, while tax revenues underperform substantially due to the lockdown.   


Concerns over SA’s fiscal deficit and debt levels have been rising in general, with a Bloomberg’s consensus now showing forecasts of a fiscal deficit in excess of -10% of GDP for 2020, and close to -10% of GDP in 2021. In 2022 a deficit of -8.5% of GDP is expected, as the impact of Covid-19 on government finances is expected to prove long lasting.


The borrowing requirement will rise substantially, and S&P sees “net debt levels rising to over 75% of GDP by the end of 2020” and “to 84.7% by 2023, raising questions around debt sustainability”. Credit rating agencies common primary function is to assess entities ability to repay debt, and SA’s ability has deteriorated materially.

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Tito Mboweni

R500bn stimulus package for South Africa’s economy


22 April 2020


The R500bn stimulus package for South Africa’s economy (close to one tenth of GDP) announced last night is well targeted – but efficient, effective implementation will determine how successful it will be

With the impact of Covid-19 rapidly developing, the global recession is increasingly expected to be worse than previously thought, with a deep, lengthy downturn exceeding 2008-09s. South Africa is also seeing forecasts for its GDP revised significantly lower, with many tending towards the -5% y/y to -10% y/y range, up from smaller contractions initially forecast.


President Cyril Ramaphosa’s announcement of a R500bn fiscal stimulus plan for South Africa last night is near 10% of GDP, and was not chosen lightly. The R500bn support package is well targeted, with a high focus on providing bridging finance for corporates (R200bn), as well increasing healthcare and providing some measures of alleviation of poverty.


Specifically, the package is broken down into a) an extra-ordinary health budget, with R20bn for healthcare for in the face of Covid-19 Relief, b) relief from hunger and social distress, including R50bn for temporary 6 month Covid-19 grants, increasing existing grants, food assistance through vouchers and cash transfers and R20bn for emergency water supply.


Furthermore, c) support for companies and workers of R100bn for protection and creation of jobs, and a R200bn loan guarantee scheme for SMMEs (in partnership with SARB, banking sector and National Treasury), and d) a phased reopening of the economy that is risk adjusted, balancing the need to get back to work with the health risks.


The “R200 billion loan guarantee scheme … (is) in partnership with the major banks, the National Treasury and the South African Reserve Bank. This will assist enterprises with operational costs, such as salaries, rent and the payment of suppliers. In the initial phase, companies with a turnover of less than R300 million a year will be eligible.”


The R500bn support package is part of the second phase of government’s “economic response to stabilise the economy, address the extreme decline in supply and demand and protect jobs”. “The third phase is the economic strategy we will implement to drive the recovery of our economy as the country emerges from this pandemic.”


The President also highlighted other measures that occurred in the first phase, including R70bn tax relief measures, R40bn income support for firms unable to pay staff wages, release of disaster funds, while the 2% repo rate cuts have unlocked R80bn for the economy. These three phases make up government’s economic recovery strategy.


“Central to the economic recovery strategy will be the measures we will embark upon to stimulate demand and supply through interventions such as a substantial infrastructure build programme, the speedy implementation of economic reforms, the transformation of our economy and embarking on all other steps that will ignite inclusive economic growth.”


The President’s announcements last night also stated the need for structural reforms and inclusive economic growth. However, South Africa is expected to have been in a three quarter recession before April this year as, the ease of doing business has been deteriorating in SA in the past decade, dragging economic growth down.  

Read the full report here


SA moves to level 4


16 April 2020


The SA's lockdown continues, but some small phased opening up of the economy has been approved by government, particularly in the mining sector, ports and logistics, hardware stores and some informal food traders

Many countries around the world are considering plans to lift restrictions on the operation of their economies (imposed to limit the spread of Covid-19), and are already outlining early phases of reopening parts of their economies, while at the same time (most are) considering the measures needed to avoid restarting a second round of Covid-19 infections.

Chancellor Merkel has appealed for "extreme caution", allowing the gradual reopening of some of smaller shops from next week and schools next month, but adding “(w)e have made some progress. But I do have to stress that this progress is fragile”, “(t)his is a situation in which caution is the order of the day, not foolhardiness.”


German exports are expected to fall by a reported 15% this year (DIHK), with 80% of companies reporting sharp falls in turnovers and pessimistic views on the future, as the pandemic continues to negatively impact global supply chains, and delayed or cancelled capital investment adding to the malaise in Europe’s largest economy.  


New Zealand may begin easing its lockdown next week, although Prime Minister Ardern warned it would not be back to normal. The country is looking at moving from a stage four lockdown, which has seen only food stores and pharmacies remain open, to stage three which includes restaurants reopening for take-aways, along with some other retailers.


President Trump has promised plans today on reopening the US  economy, stating that the U.S. had "passed the peak" of the Covid-19 crisis and that his "aggressive strategy" against Covid-19 was effective, vowing immediate "guidelines" on ventilating parts of the economy, with areas/states evidencing lower infections easing restrictions by 1st May.


The US is reporting a record daily death toll from Covid-19. WHO data shows that for 15th April the US had 578 268 confirmed cases, with 23 476 fatalities so far, and daily 24 446 new cases and 1 504 new deaths. The CDC says the US is “nearing the peak right now”. The US has reported the most fatalities from Covid-19 versus any other nation.


The US has also lost 22 million jobs during its lockdown, eliminating the employment created in its past ten years of growth since its last recession of 2009, with Bloomberg also reporting that a US jobless rate of 15% or higher is implied by the recent jobless claims, a high since the Great Depression.


South Africa has amended its lockdown regulations to start reopening a few economic areas, notably mining (which can now operate at 50% capacity) under very strict health regulations. Miners which supply Eskom can operate at full capacity, as well as smelters, plants and furnaces, and refineries to prevent fuel shortages, all under very strict health regulations.


Furthermore, essential items can be sold from hardwares and suppliers of vehicle components under register, logistics and ports can operate for export to decongest ports, bring in cargos currently at ports, and the transportation of cargos from ports and general transportation of essential goods. A further gradual phased opening of SA’s economy is likely.

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Rand tumbles as intrest rate cut is announced


14 April 2020


Rand weakens on SARB surprise 100bp cut announced today, to R18.40, after having closed yesterday at R18.27,      we continue to expect an average of R17.50/USD for Q2.20

The surprise 100bp cut in the SARB’s repo rate today (to 4.25%) takes South Africa’s interest rate cuts this year to 2.25% in total. The repo rate is at a historic low since it was recorded in 1998, the previous low was in 2013 at 5%. The prime lending rate was last at 7.75% in 1973.


After an initial knee-jerk reaction, the rand retracted to R18.26/USD, R20.01/EUR and R22.93/GBP from R18.37/USD, R20.09/EUR and R23.03/GBP, with its close yesterday at R18.12/USD, R19.77/EUR and R22.65/GBP. The SARB has indicated more cuts are currently likely, potentially another 1.25%. The rand saw additional weakness this afternoon.


Interest rates are low globally, with Central Bank rates respectively at 0.1% for the UK, 0.05% for the US, in Europe 0%and Japan at 0.3%. The degree of monetary and fiscal stimulus globally is unprecedented, with the Federal Reserve Bank expanding its assets on its balance sheet under a huge quantitative easing programme.


This will prove inflationary, and in particular will weaken the US dollar over the course of this year (and potentially next), while the huge quantum of liquidity globally is likely to prove yield seeking, lowering risk appetite and driving portfolio flows into risky assets, which include equities generally and emerging market bonds, with the rand expected to benefit.


The rand saw a more marked retracement against the US dollar, than against the euro and the UK pound, around midday, while the gold price rose to US$1 748/oz from its close of US$1 713/oz yesterday,  with the gold price expected to gain further on the impact of global QE (Quantitative Easing). 


Currently however, global financial markets have not yet entered a period of risk-on and risk aversion is still heightened globally. The domestic currency is still at weak levels, and is likely to remain volatile and weak in the near term until evidence for the beginnings of a recovery in the global economy become clearer.


The South African Reserve Bank (SARB) notes currently as well that “global financing conditions are no longer supportive of emerging market currency and asset values. Credit risk has risen back to 2008 levels and about R100billion of local assets have been sold by non-resident investors.”


The SARB adds that “(t)he overall risks to the inflation outlook at this time appear to be to the downside”. Its 2.25% cut in interest rates this year have helped both steepen, and lower the yield curve, along with its substantial operations to add liquidity in the mid to longer-end of the yield curve.


The huge volumes of QE globally makes the interest rate cuts in South Africa easier for markets to stomach, and the SARB is likely to cut rates further to assist SA as additional measures of monetary stimulus occur globally. The rate cuts in SA are likely to keep the rand closer to R18.00/USD - R18.50/USD this month, but strengthening as risk-on emerges.

Read the full report here

South African rand

Q2.20 Macro-economic outlook 2020-25


1 April 2020


Covid-19’s global impact aids SA deeper into its recession, H2.20 is likely to see recovery

South Africa is currently likely to see GDP contract by -2.7% y/y this year, following on from the recession in the second half of last year. Risk is seen to be tilted to the downside however, on both the degree and extent of disruption to domestic, and global, economic activity from the Covid-19 pandemic.

South Africa’s recession this year is expected to be greater than its recession at the time of the global financial crisis just over a decade ago. In 2020 peak to trough a contraction of -4.0%  is estimated, versus -2.5% in SA’s recession that stretched over H2.08 and Q1.09.

The global economy is widely believed to fall into a recession this year, but consensus expectations are currently for the global economy to recover in 2021, and indeed for this recovery to begin in the second half of 2020. 

However, uncertainty is still high and  it is not yet certain how long it will take to contain the virus (flatten the curve globally), and how long the global economy will be negatively affected, with some growing concerns that the negative impact of Covid-19 could drag on into 2021.

Policy support measures announced have been very substantial globally, bringing some stabilization to the financial markets, but the economic shutdowns are having negative effects on incomes, employment and output globally. 

While better understandings of Covid-19 has been gained over the last month from the experiences in other countries (particularly China), uncertainty is still high and it as it is not yet certain how long it will take to contain the virus (flatten the curve globally), and how long the global economy will be negatively affected,.

Indeed, only once it looks likely that the Covid-19 curve has flattened globally and sentiment turned, will economic forecast become clearer. Reducing market risk aversion (uncertainty) from still high levels will be key in driving some recovery of the rand and SA’s other financial market indicators.

Read the full report here


Moody's downgrades SA amid Covid-19 crisis


28 March 2020


Moody's finally downgrades South Africa amid Covid-19 crisis, risks are skewed to the downside not just for SA


After a long process, with multiple warnings, Moody’s has finally dropped SA to sub-investment grade at Ba1, and has also put a negative outlook on the rating – which is now equivalent to the BB+ negative of Fitch. S&P already has SA on BB, and both Fitch and Moody’s are signalling that is the next step for South Africa.
Global economic shutdowns in the face of Covid-19 has caused turmoil, both already in financial markets ahead of the measures and on institution in economies as many large and small corporates face severe weakening of balance sheets, with the economic effect likely already in the region of the recession of the global financial crisis just over a decade ago.

 While there are widespread expectations of such a global recession, the uncertainty is also high as it remains unknow how long it will take to contain the virus, and so how long the global economy will be negatively affected. 
Policy support measures announced are very substantial globally, but the shock could prove worse than currently anticipated, superseding the great recession of 2008-2009 stemming from the global financial crisis, with rissk currently tilted to the downside, depending on the degree and extent of disruption to global economic activity. 

Consensus expectations are currently for the global economy to recover in 2021, and indeed for this to begin in the second half of 2020. Our expectation is similar for South Africa, with a contraction in GDP growth of -2.7% y/y in 2020, with a particularly sharp contraction in the second quarter of this year.

The additional expenditure measures government seeks to institute in South Africa to provide some support in the face of Covid-19 will worsen government finances, as will the contraction in GDP and the negative impact to corporate and household incomes on the shutdown. However, breaking the spread of Covid-19 is paramount, and the costs will be even more substantial if it is not.

Moody’s most recent report on South Africa detailed “(d)ownside risks to growth are both immediate and longer term, relating to heightened uncertainty about the economic impact of the coronavirus pandemic and persisting domestic impediments to growth.” 
The agency added that “(t)he negative outlook (it has instituted on SA’s new Ba1 rating) reflects downside risks to economic growth and fiscal metrics, that could lead to an even more rapid and sizeable increase in the debt burden, further lowering debt affordability and potentially weakening South Africa’s access to funding.”

“South Africa risks another credit rating downgrade, potentially before the end of this year. Moody’s in particular warns that an increased likelihood of “the debt burden … ris(ing) to even higher levels than currently projected, with even greater uncertainty regarding its eventual stabilisation, would exert downward pressure on the rating, as would any indications that the government’s access to funding at manageable costs has structurally deteriorated.” 
Further credit rating downgrades to SA’s sovereign debt would weaken (and add to the volatility of) financial market indicators, negatively impacting the growth and socio-economic outlook. The financial markets have already viewed SA worse than BB+, at closer to B+.


Consumer confidence drops in Q1

17 March 2020

Consumer confidence drops to -9, two index points below the last print, and now at the average of the Zuma years of 2015 to 2019

FNB/BER’s consumer confidence index (CCI) dropped to -9 in Q1.20, below Q4.19’s -7 outcome, with -9 the average towards the end of the Zuma presidency, 2015-2017, when the index dropped to a low of -15 in the 2010s decade. The prior lows were -20 in 2000, and -24 in 1993, both years of financial market crisis, with -36 before that in the period of SA’s partial debt default (1985).

Unfortunately, with Covid-19 likely to spread further in SA, as it follows the trajectory in other countries, SA is likely to see a further fall in the perceived appropriateness of buying durable goods at the time of the Q2.20 survey, and so the consumer confidence index is at risk of falling further in Q2.20.


South Africa will be in partial shut down from the 18th March (schools, thirty five of the land and sea ports, travel bans from high risk countries, mandatory self testing and self-isolation for those likely to be, or who are, infected and social distancing). A further spread of the virus, which tends to accelerate dramatically until it peaks would exacerbate these measures and citizens reactions.


The outlook for the domestic economy has worsened on the Covid-19 pandemic, we now forecast 0.1% y/y for South Africa’s economic growth in 2020, which will negatively impact household finances, and so further suppress consumer confidence in 2020. We could drop our GDP forecast further, to a recession for the year of 2020, should the global and local outlook worsen.  


A worsening of global economic growth negatively impacts SA’s GDP outcome, with demand for SA exports of goods and services suffering, as well as the negative impact on tourism, and income for workers in the industries. A worsening of the domestic outlook negatively impacts employment, production, incomes, profitability and the ability to service debt (for corporates as well). 

Read the full report here

Lesetja Kganyago

Covid-19: Expectations for SA economy

13 March 2020

MPC to weigh up the risk of further substantial rand weakness on a March Moody’s downgrade  against Covid-19 impact on the economy.

Listen to podcast:

MPC to weigh up the risk of further substantial rand weakness on a March Moody’s downgrade  against Covid-19 impact on the economy.

South Africa faces a very close call on interest rates next week, with the global economy in a severe risk-off phase, and the full economic impact of Covid-19 not yet having been felt, with even few early indicators of the likely severity of the spread of the disease on global growth.
Globally, the economic consensus now expects global growth to be 0.5% y/y to 1.0% y/y lower this year, than the previously expected figure of closer to 3.0% y/y for 2020. The IMF previously forecast global growth at 3.3% y/y for 2020, and the World Bank had 2.5% y/y – due to different calculation methods as well as different countries used in their compilations.
The IMF dropped their forecast for global growth by 0.1% y/y in February, but the World Bank is yet to revise their figure. With global growth forecasts continuously being revised down, the head of the IMF, Kristalina Georgieva, recently “predicted that global growth would dip below last year's rate of 2.9%”. 
We now forecast global growth 0.9% lower than we expected in January. For South Africa GDP growth is now likely to come out at 0.1% this year, due to the impact of Covid-19 on global growth and hence on demand for SA exports of goods and services, as well as the negative impact of load shedding which is proving to be more severe than Eskom initially indicated.
The global risk sentiment environment has deteriorated materially, and the rand is close to R16.50/USD currently. We expect a 25bp cut at the MPC meeting next week. However, the risk of a Moody’s downgrade at the end of the month could scupper the chance of this rate cut, given that it could push the domestic currency towards R18.00/USD if the current severe risk-off environment in global financial markets persists.

Read the full report here

Tito Mboweni

2020 Budget: Spending cuts won't offset revenue shortfall

26 February 2020

Mboweni promises lower expenditure, particularly on the wage bill. But cuts are insufficient to offset revenue shortfall and debt projections are largely unchanged since the 2019 Medium Term Budget Policy statement. That bodes ill for SA's Moody’s credit rating. But the agency is likely to hold it's current investment-grade rating until November.


The 2020 Budget finally delivered the actual cuts to its expenditure projections (R156bn) that have long been deemed necessary, although the downwards adjustments are not as large as are needed, given also the downward revisions to revenue projections in earlier years, which helps debt projections remain unchanged at above 71% of GDP in 2022/23.
The Budget does not consequently offer enough to see SA’s credit rating outlook return to stable (no downgrade indicated), after it was dropped to negative in November last year to show the agency’s intention of downgrading SA within eighteen months. However, the Budget offers some factors which could help avoid a downgrade on 27th March.
This does not mean SA will not remain in line for a downgrade within eighteen months of first November 2019, but rather that Moody’s will take a large portion of those eighteen months to decide, possibly even stretching the decision in 2021 if SA continues to show incremental efforts to consolidate its finances.
The 2020 Budget is not an austerity budget, it guards against quickening the downwards trend in economic growth in SA by avoiding material tax increases, and indeed aims to quicken economic growth by seeking to reduce corporate taxes, and adjusting for fiscal drag this time around, and not implementing a VAT increase to assist households in SA. 
The rand consequently strengthened in response, to R15.11, R16.42/EUR and R19.53/GBP from a high reached today before the budget of  R15.35/USD, R16.71/EUR and R19.89/GBP, as markets favoured the outcome of the Budget somewhat, in particular showing relief at the avoidance of any draconian tax hikes.
Indeed, weak economic growth continues to see revenue projections lowered, and indeed the Budget drops its 2020 GDP projection to 0.9% y/y in 2020 (previously 1.2% y/y projected in the 2019 MTBPS), 1.3% in 2021 (previously 1.6% y/y) and 1.7% in 2022 (previously 1.7% y/y). 
Fiscal slippage is apparent in the fiscal deficit, but the debt to GDP projections remain largely unchanged for 2022/23 at a very unhealthy 71.6% of GDP for an emerging market, and 61.6% of GDP for the current fiscal year, with above 60% of GDP generally seen as unsustainable for an emerging market.

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Tito Mboweni image

Budget 2020: Expect fiscal deficit to widen

24 February 2020

A widening of the fiscal deficit is anticipated in the 2020 Budget, underpinned by weaker economic growth than previously projected

Since the tabling of the medium term budget policy statement (MTBPS) in October 2019, economic growth prospects have softened further, with recorded headline GDP for 2019 anticipated to be less than 0.5% y/y, lifting moderately to around 0.8% y/y in 2021.


Stated reforms have been slow to implement, with confidence at historically low levels. Faced with a low-growth scenario, maintaining government’s policy commitments continues to be challenging. 


Considering the revenue and expenditure side measures already undertaken by Treasury, along with slower CPI inflation and nominal GDP growth, we anticipate the consolidated budget deficit to be slightly higher than forecast (MTBPS) at 6.1% of GDP in 2019/20. The tightening of fiscal levers (adjustments to revenue and expenditure projections) is key to rebuilding confidence and avoiding further credit rating downgrades. 


Eskom remains a key drag on the fiscus and government guarantees on its debt is a major concern for rating agencies, a workable, transparent solution to deal with the utility’s spiraling debt, needs to be conveyed timeously, as ratings agencies deliberate SA’s sovereign position. 

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Moody's rating image

Moody’s March review: SA credit watch unlikely post Budget 2020

21 February 2020

Moody's country review of SA in March will probably not see SA placed under credit watch, regardless of the content of next week's budget. That's because Moody's will already have all the information it needs to either revise its current negative outlook or to downgrade the country's credit rating. 

On Wednesday, 26 February, South Africa's Minister of Finance, Tito Mboweni, will deliver a make-or break-budget speech, which will in all likelhood keep SA’s debt to GDP projections fairly similar to those of last year's Medium Term Budget Policy Statement (MTBPS). It's this debt to GDP ratio that prompted Moody’s to place SA on a negative outlook.
A less likely outcome is that the budget will materially lower the debt to GDP projection, but this would require significant spending cuts. The 2019 MTBPS predicted lower revenues due to a material deterioration in the economic growth outlook, while expenditure projections grew,  pushing up debt projections. 
The public sector wage bill is a key factor. While the Treasury would no doubt like to see only inflation-adjusted increases for public sector and SOE employees, this may be difficult in the current political climate. Govenrment has a record of flip-flopping on wages and the implementation of structural reforms remains log-jammed.
Additional expenditure allocated to Eskom to keep it afloat has also been a drain on government finances. Earlier this month it looked like Cosatu had formulated a plan to rescue Eskom by halving its debt. Had this proposal been accepted, the result would have been a lower debt trajectory, lessening the chance of a downgrade.
Moody's currently has South Africa on a negative outlook, which implies that within around eighteen months the country could be downgraded. The 2019’s MTBPS projected gross debt to reach 71% of GDP by 2022/23 (from closer to 60% in the 2019 MTBPS), and to 81% by 2027/28 (from 59.3% in the 2019 MTBPS). 
For SA to return to a stable outlook, SA’s government debt projections would need to be lowered all the way back down to 2019 Budget levels, whose debt trajectory supported a stable ratings outlook from Moody’s.
SA will either return to a stable outlook, remain on a negative outlook or be downgraded after next week’s Budget. While there are some concerns SA will receive a credit watch, we believe this is very unlikely.

A credit watch is typically used when a credit situation is fluid and the outcome is uncertain. A credit watch can also be implemented when additional information is needed before a rating decision, due to the entity likely moving away from an expected trend. However, the information in next week’s budget will be comprehensive, transparent and detailed, obviating the need for a credit watch.

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