Macro Forum: The Street View


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The economy recovered in Q3, up by 2.2% quarter-on-quarter (1.1% year-on-year) after the very poor second quarter 0.7% contraction. The retail, manufacturing and agriculture sectors contributed to positive growth in Q3. However, the mining sector remained under pressure and contracted 8.8% quarter-on-quarter as the worst performing sector. Headwinds still facing the economy include low confidence among households and business, uncertainties around policies, high unemployment and a low growth environment. In particular, the policy on land Expropriation Without Compensation (EWC) and a bailout for Eskom, the national power utility will weigh heavily on the economy. GDP is expected to grow by 0.7% and 1.9% in 018 and 2019 respectively.

The fuel price was lowered dramatically towards the end of 2018 and had a major impact on moderation in the inflation rate, which resulted in the headline index decreasing by 0.2% month-on-month in December versus a 0.2% increase the month before. Inflation was 4.5% year-on-year in December compared to 5.2% in November. Inflation will be impacted by increases in the global oil price, the ZAR and a ruling on a request by Eskom for hefty electricity tariff hikes and these are factors to keep an eye on. Inflation is forecast at 4.6% in 2018 and 4.7% in 2019. The main policy rate, the Repo rate was kept unchanged at 6.75% at the January 2019 Monetary Policy Meeting on the back of a stable inflation rate and improvement in growth, after a 25bps increase was made in November 2018.

The current account deficit widened further in Q3 2018 to 3.5% due to a large decline in the trade surplus from US$38.3bn in Q2 2018 to US$14bn in Q3. The current account deficit is expected to be 3.7% of GDP in 2018 compared to 2.4% of GDP in 2017.

The ZAR made a strong recovery in November on the back of improved sentiment to Emerging Markets and S&P leaving their credit rating unchanged. The ZAR depreciated marginally by 0.9% over the quarter ending on ZAR14.36 from ZAR14.22 to the US$ on 1 October 2018.

Local politics will come to the fore strongly in the first quarter of 2019, with national elections scheduled for May. The ruling ANC launched their 2019 election manifesto with creation of jobs, President Cyril Ramaphosa’s R1.2 trillion investment drive, land reform, stamping out of corruption and health and education as the main points of focus. Many of these are not new and the ANC has shown poor performance on these in the past. However, President Cyril Ramaphosa enjoys popular support and respect from across the spectrum and although revelations of corruption by ANC politicians and officials have placed a dampener on the ANC, the ANC is expected to win the elections comfortably





Real GDP Growth

Source: International Monetary Fund

South Africa FX vs FV

Source: Bloomberg Spot Price and Actis methodology for Fundamental Value


Source: International Monetary Fund