Receive Focus insights straight to your inbox
The detrimental economic effects of Covid-19-induced lockdowns drove a -7.0% y/y collapse in GDP las year. Inflation consequently dropped to an average of 3.3% y/y, with levels falling as low as 2.1% y/y in May, the lowest CPI reading since September 2004. A steep decline in fuel prices, on the back of plunging oil prices, coupled with depressed domestic demand, suppressed the inflation rate for most of 2020. Inflation remained relatively subdued during Q1.21, averaging 3.1% y/y, but base effects will push up the CPI reading for the remainder of the year.
The BER’s Q1.21 inflation expectations survey, released quarterly, sees average inflation rising to 3.9% y/y (previously 4.2% y/y) in 2021 and 4.2% y/y (previously 4.5% y/y) in 2022. Average five-year expectations among all social groups edged marginally lower to 4.6% from 4.7% indicated in the preceding survey.
The results of the BER’s inflation expectations survey, while still indicating a notable lift in the inflation trajectory, are below the SARB and Investec’s forecasts. Specifically, the SARB, while viewing the overall risks to the inflation outlook as balanced, expects inflation to climb to an average of 4.3% and 4.4% in 2021 and 2022 respectively. Investec is anticipating headline CPI to reach an average of 4.2% in 2021 and then increase to an average of 5.0% (2022), above the mid-point of the inflation targeting band, supported by a lift in demand as the global recovery gains momentum. The emergence of new, potentially drug-resistant strains of the virus, with additional waves of infection, however, remains a risk to the outlook.
The BER’s Q1.21 inflation expectations survey, released quarterly, sees average inflation rising to 3.9% y/y (previously 4.2% y/y) in 2021 and 4.2% y/y (previously 4.5% y/y) in 2022. Average five-year expectations among all social groups edged marginally lower to 4.6% from 4.7% indicated in the preceding survey.
The results of the BER’s inflation expectations survey, while still indicating a notable lift in the inflation trajectory, are below the SARB and Investec’s forecasts. Specifically, the SARB, while viewing the overall risks to the inflation outlook as balanced, expects inflation to climb to an average of 4.3% and 4.4% in 2021 and 2022 respectively. Investec is anticipating headline CPI to reach an average of 4.2% in 2021 and then increase to an average of 5.0% (2022), above the mid-point of the inflation targeting band, supported by a lift in demand as the global recovery gains momentum. The emergence of new, potentially drug-resistant strains of the virus, with additional waves of infection, however, remains a risk to the outlook.
More detail
Read the full report
Surplus on the trade account widened notably
30 April 2021
Trade surplus increased to R52.8bn in March, supported by a 28.9% m/m increase in exports.
The surplus on South Africa's merchandise trade account increased markedly to R52.77bn in March, from R31.22bn (revised) in February. The outcome was well above Bloomberg consensus expectations of a R23.6bn surplus and was underpinned by a 28.9% m/m increase in exports to R168.29bn, ahead of the 16.3% m/m lift in imports to R115.52bn.
March’s outcome is supported by results from the JP Morgan global manufacturing PMI for March which indicated that international trade flows “(p)icked up pace, with growth of new export business the steepest since January 2018”.
Measured on an annual basis, March’s R52.77bn surplus is a notable improvement from the R21.41bn trade balance surplus logged last year.
A review of the trade highlights released by SARS, suggests that the lift in exports was broad based, with all key categories increasing on a month-on-month basis. Notably Precious metals and stones exports grew by 41.0% m/m. Similarly, all major import segments rose, when compared to the previous month.
Estimates by the World Trade Organisation (WTO), suggest that the volume of world merchandise trade could grow by “8.0% in 2021 after having fallen 5.3% in 2020” and thereafter decelerate to 4.0%. However, they do caution that the “relatively positive short-term outlook for global trade is marred by regional disparities, continued weakness in services trade, and lagging vaccination timetables, particularly in poor countries”.
March’s outcome is supported by results from the JP Morgan global manufacturing PMI for March which indicated that international trade flows “(p)icked up pace, with growth of new export business the steepest since January 2018”.
Measured on an annual basis, March’s R52.77bn surplus is a notable improvement from the R21.41bn trade balance surplus logged last year.
A review of the trade highlights released by SARS, suggests that the lift in exports was broad based, with all key categories increasing on a month-on-month basis. Notably Precious metals and stones exports grew by 41.0% m/m. Similarly, all major import segments rose, when compared to the previous month.
Estimates by the World Trade Organisation (WTO), suggest that the volume of world merchandise trade could grow by “8.0% in 2021 after having fallen 5.3% in 2020” and thereafter decelerate to 4.0%. However, they do caution that the “relatively positive short-term outlook for global trade is marred by regional disparities, continued weakness in services trade, and lagging vaccination timetables, particularly in poor countries”.
More detail
Read the full report
Economic recovery and debt outlook correlate directly to lockdown levels
30 March 2021
Data continues to show that businesses and consumers are highly sensitive even to limited restrictions
South African businesses are not resilient to the lockdown restrictions, and neither are consumers. That's clear from the latest economic production data, which is still well below the first quarter of last year.
GDP in the first quarter of 2021 was at R3.1tri in real terms, while fourth quarter 2020 GDP only reached R3.0tr. We're not expected regain pre-Covid production levels until 2024, although reimposition of harsh lockdown restrictions would delay this.
Globally, economic recovery is slow too, and the World Bank continues to reiterate this, highlighting that “although global economic output is recovering from the collapse triggered by COVID-19, it will remain below pre-pandemic trends for a prolonged period.”
Furthermore, the World Bank warns that “the pandemic has exacerbated the risks associated with a decade-long wave of global debt accumulation. It is also likely to steepen the long-expected slowdown in potential growth over the next decade.”
The IMF adds that the “world faces severe problems of debt sustainability in the wake of the coronavirus crisis that have not been properly understood or addressed, … which threaten to tip developing countries into a rising wave of hunger, poverty, social unrest and conflict.”
“The fact that only six countries had defaulted on their foreign debts last year — Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia... created the illusion of stability and a misperception of the seriousness of the situation. Large, middle-income developing countries such as Brazil and South Africa have borrowed heavily from domestic lenders rather than from foreign investors, at interest rates much higher than those available to rich countries, making the dangers less visible than in previous emerging market debt crises”.
South Africa is facing further credit rating downgrades, potentially on 7th May from Moody’s, if not sooner from Fitch (S&P country review is on the 21st May), risking the loss of its BB- rating, and so also risking marked rand weakness and higher borrowing costs.
We have not changed our economic growth outlook substantially, and still expect GDP to rise by around 3.0% y/y this year, with employment rising at the same rate. However, should a third wave of infections after Easter precipitate tighter lockdown restrictions, even this muted pace of recovery would be unlikely.
GDP in the first quarter of 2021 was at R3.1tri in real terms, while fourth quarter 2020 GDP only reached R3.0tr. We're not expected regain pre-Covid production levels until 2024, although reimposition of harsh lockdown restrictions would delay this.
Globally, economic recovery is slow too, and the World Bank continues to reiterate this, highlighting that “although global economic output is recovering from the collapse triggered by COVID-19, it will remain below pre-pandemic trends for a prolonged period.”
Furthermore, the World Bank warns that “the pandemic has exacerbated the risks associated with a decade-long wave of global debt accumulation. It is also likely to steepen the long-expected slowdown in potential growth over the next decade.”
The IMF adds that the “world faces severe problems of debt sustainability in the wake of the coronavirus crisis that have not been properly understood or addressed, … which threaten to tip developing countries into a rising wave of hunger, poverty, social unrest and conflict.”
“The fact that only six countries had defaulted on their foreign debts last year — Argentina, Belize, Ecuador, Lebanon, Suriname and Zambia... created the illusion of stability and a misperception of the seriousness of the situation. Large, middle-income developing countries such as Brazil and South Africa have borrowed heavily from domestic lenders rather than from foreign investors, at interest rates much higher than those available to rich countries, making the dangers less visible than in previous emerging market debt crises”.
South Africa is facing further credit rating downgrades, potentially on 7th May from Moody’s, if not sooner from Fitch (S&P country review is on the 21st May), risking the loss of its BB- rating, and so also risking marked rand weakness and higher borrowing costs.
We have not changed our economic growth outlook substantially, and still expect GDP to rise by around 3.0% y/y this year, with employment rising at the same rate. However, should a third wave of infections after Easter precipitate tighter lockdown restrictions, even this muted pace of recovery would be unlikely.
More detail
Read the full report
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.
Headline producer price inflation rose to 3.5% y/y in January 2021
25 February 2021
Headline producer price inflation rose to 3.5% y/y in January, from 3.0% y/y in December 2020, above Bloomberg consensus expectations of 3.2% y/y.
Manufactured food price inflation increased to 7.2% y/y from 6.9% y/y recorded in December. The food products, beverages and tobacco products category which makes up just over 36.0% of the PPI basket thus added 2.1% to the headline reading, from 1.9% previously.
Price lifts within the oils and fats, and starches, starch products and animal feeds segments were the most pronounced, while meat price inflation dropped further to 6.9% y/y from 7.2% y/y and 9.7% y/y in December and November respectively, “in part, due to increased supply following slightly higher slaughtering activity in December 2020,” according to Agbiz. Food price inflation is still expected to average 5.0% y/y for 2021.
The January fuel price increases of 40c/litre for petrol and 54c/litre for diesel saw the annual rate of contraction in the coke, petroleum, chemical, rubber and plastic products grouping, in which fuel price dynamics are captured, decelerating to -2.1% y/y from -3.9% y/y in December. This category which makes up a marked 19.4% of the PPI basket accordingly detracted just -0.4% from the annual topline PPI reading, versus -0.8% previously.
Both PPI and CPI are expected to rise in 2021, from the low levels recorded in 2020, but should remain contained, underpinned by a likely still muted demand environment. Indeed, while GDP growth is expected to pick-up, supported by the vaccination rollout it will be protracted.
Price lifts within the oils and fats, and starches, starch products and animal feeds segments were the most pronounced, while meat price inflation dropped further to 6.9% y/y from 7.2% y/y and 9.7% y/y in December and November respectively, “in part, due to increased supply following slightly higher slaughtering activity in December 2020,” according to Agbiz. Food price inflation is still expected to average 5.0% y/y for 2021.
The January fuel price increases of 40c/litre for petrol and 54c/litre for diesel saw the annual rate of contraction in the coke, petroleum, chemical, rubber and plastic products grouping, in which fuel price dynamics are captured, decelerating to -2.1% y/y from -3.9% y/y in December. This category which makes up a marked 19.4% of the PPI basket accordingly detracted just -0.4% from the annual topline PPI reading, versus -0.8% previously.
Both PPI and CPI are expected to rise in 2021, from the low levels recorded in 2020, but should remain contained, underpinned by a likely still muted demand environment. Indeed, while GDP growth is expected to pick-up, supported by the vaccination rollout it will be protracted.
More detail
Read the full report
GDP and industrial production are expected to fall
26 January 2021
Both GDP and industrial production are expected to fall by close to -5.0% y/y in Q4.20, evidencing no quick, V shaped recovery for SA, with all those who lost their jobs in Q2.20 still not likely re-employed either
Yesterday saw the release of the Bloomberg economic consensus, and incidentally showed that the expected GDP outcome for 2020 is -7.3% y/y, the same figure we published at the start of this month, although the expectation for 2021 is 3.5% y/y versus our 2.9% y/y.
With three quarters worth of data already published for 2020, only the Q4.20 reading remains outstanding, and we forecast a lift of 2.5% qqsaa (quarter on quarter, seasonally adjusted, annualised), after Q3.20’s 66.1% qqsaa rebound.
While the incoming data for Q4.20 does indicate a lift over Q3.20, it is not showing a very strong rebound, as Q3.20’s outcome occurred off the statistical lows of Q2.20, which is not occurring again in Q4.20.
While Q2.20 GDP fell by -51.7% qqsaa (annualisation essentially gives you the growth outcome if the same level of GDP occurred for the whole year instead of one quarter), without annualisation it dropped by -16.6% between Q1.20 and Q2.20.
The -16.6% drop in GDP in Q2.20, means the actual value of GDP in Q2.20 was 83.4% of the Q1.20 amount of R3.1trillion (in real terms), so Q2.20 came out at R2.6trillion, with a loss of R0.52trillion in production, or R520billion.
Following on from this, Q3.20’s annualised rise of 66.1% qqsaa sounds a lot, but it is only a lift of 13.5% q/q. Consequently, the Q3.20 GDP, at R2.96trillion, is only 94.6% the size of Q1.20 GDP and so the production lost in Q2.20 GDP was not fully recovered in Q3.20.
With a lift of 2.5% qqsaa in Q4.20 expected, or about 0.7% q/q (not annualised), GDP only rises to R2.98trillion, again still not reaching the level of Q1.20’s outcome of R3.1trillion and showing that there is no V shaped recovery for South Africa.
Even a lift of 3.5% qqsaa in Q4.20 GDP will still give you R2.99trillion, and so once again no return to the R3.1trllion level of production in Q1.20. This is the same for the components of GDP and indeed, GDP is only expected to reach R3.13trillion by the turn of the year into 2024.
For Q4.20 only two months’ worth of data is generally available, and industrial production is showing a lift of about 3.8% on the previous period, but is down -4.6% y/y for the first two months of Q4.20. This would tally with the drop of close to -5.0% y/y expected for Q4.20 GDP.
With three quarters worth of data already published for 2020, only the Q4.20 reading remains outstanding, and we forecast a lift of 2.5% qqsaa (quarter on quarter, seasonally adjusted, annualised), after Q3.20’s 66.1% qqsaa rebound.
While the incoming data for Q4.20 does indicate a lift over Q3.20, it is not showing a very strong rebound, as Q3.20’s outcome occurred off the statistical lows of Q2.20, which is not occurring again in Q4.20.
While Q2.20 GDP fell by -51.7% qqsaa (annualisation essentially gives you the growth outcome if the same level of GDP occurred for the whole year instead of one quarter), without annualisation it dropped by -16.6% between Q1.20 and Q2.20.
The -16.6% drop in GDP in Q2.20, means the actual value of GDP in Q2.20 was 83.4% of the Q1.20 amount of R3.1trillion (in real terms), so Q2.20 came out at R2.6trillion, with a loss of R0.52trillion in production, or R520billion.
Following on from this, Q3.20’s annualised rise of 66.1% qqsaa sounds a lot, but it is only a lift of 13.5% q/q. Consequently, the Q3.20 GDP, at R2.96trillion, is only 94.6% the size of Q1.20 GDP and so the production lost in Q2.20 GDP was not fully recovered in Q3.20.
With a lift of 2.5% qqsaa in Q4.20 expected, or about 0.7% q/q (not annualised), GDP only rises to R2.98trillion, again still not reaching the level of Q1.20’s outcome of R3.1trillion and showing that there is no V shaped recovery for South Africa.
Even a lift of 3.5% qqsaa in Q4.20 GDP will still give you R2.99trillion, and so once again no return to the R3.1trllion level of production in Q1.20. This is the same for the components of GDP and indeed, GDP is only expected to reach R3.13trillion by the turn of the year into 2024.
For Q4.20 only two months’ worth of data is generally available, and industrial production is showing a lift of about 3.8% on the previous period, but is down -4.6% y/y for the first two months of Q4.20. This would tally with the drop of close to -5.0% y/y expected for Q4.20 GDP.
More detail
Read the full report
The rand consolidates after its strong appreciation trend from April
7 December 2020
The rand remains around R15.25/USD to R15.30/USD since mid-November, with the domestic currency unlikely to see much strength beyond R15.00/USD on a sustained basis
The rand averages R15.93/USD so far this quarter. Since mid-November it has averaged R15.31/USD, but failed to make further, sustained gains, as markets’ have discounted the expected positive impact of vaccinations on economic recovery.
Further marked advancement in the rand will require additional, substantial good news which has not already been discounted, and indeed the rand is still at risk of depreciation in the year ahead, and will remain subject to the risk of high volatility as well.
While most of the news on vaccines has already been discounted by financial markets, structural problems remain to trip up sentiment, particularly the build-up of sovereign debt in most countries over the past year, while economic recoveries are by no means complete.
Additionally, vaccines themselves are not the panacea, with a lengthy time period still needed for the global population to be vaccinated in total, which could take the course of 2021, if not into 2022 as well to effectively reach all the populations of poor nations as well.
Strong policy support measures will consequently still be needed through 2021, and hastily removing these will create an even more uneven recovery than is already occurring, with a patchy revival still expected both between economies, and within economies’ sectors as well.
Risk-on sentiment cannot be taken for granted in global financial markets. With the Northern Hemisphere autumn, winter and spring typically a risk-on period anyway, the positive sentiment that has supported the rand cannot be relied on to continue throughout 2021.
Interest rates are expected to remain low globally for a very protracted period, and markets have factored this in, adding to the impetus for recovery in financial market indicators that has occurred, as have expectations of contained inflation and additional fiscal stimulus.
However, very low interest rates discourage lending, despite strong appetite for borrowing, particularly when policy rates are zero bound or close to it. This is a risk to the speed and sustainability of global recovery, as is disregarding needs in the face of climate change.
Additionally, trade tensions are on the radar for 2021, with the US, even under a presidential change, still looking to contain trade with China via sanctions if its requirements are not met, although markets hope less aggressively than occurred under Trump.
Further marked advancement in the rand will require additional, substantial good news which has not already been discounted, and indeed the rand is still at risk of depreciation in the year ahead, and will remain subject to the risk of high volatility as well.
While most of the news on vaccines has already been discounted by financial markets, structural problems remain to trip up sentiment, particularly the build-up of sovereign debt in most countries over the past year, while economic recoveries are by no means complete.
Additionally, vaccines themselves are not the panacea, with a lengthy time period still needed for the global population to be vaccinated in total, which could take the course of 2021, if not into 2022 as well to effectively reach all the populations of poor nations as well.
Strong policy support measures will consequently still be needed through 2021, and hastily removing these will create an even more uneven recovery than is already occurring, with a patchy revival still expected both between economies, and within economies’ sectors as well.
Risk-on sentiment cannot be taken for granted in global financial markets. With the Northern Hemisphere autumn, winter and spring typically a risk-on period anyway, the positive sentiment that has supported the rand cannot be relied on to continue throughout 2021.
Interest rates are expected to remain low globally for a very protracted period, and markets have factored this in, adding to the impetus for recovery in financial market indicators that has occurred, as have expectations of contained inflation and additional fiscal stimulus.
However, very low interest rates discourage lending, despite strong appetite for borrowing, particularly when policy rates are zero bound or close to it. This is a risk to the speed and sustainability of global recovery, as is disregarding needs in the face of climate change.
Additionally, trade tensions are on the radar for 2021, with the US, even under a presidential change, still looking to contain trade with China via sanctions if its requirements are not met, although markets hope less aggressively than occurred under Trump.
More detail
Read the full report
About the author
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.
PREVIOUS ECONOMIC UPDATES:
Receive Focus insights straight to your inbox
