The main domestic data event over the past week was the release of the 2020Q1 GDP figures. Although not as poor as feared, the data still highlighted just how weak the SA economy was even before the unprecedented COVID-19 crisis hit with full force in 2020Q2. read more

The main domestic data event over the past week was the release of the 2020Q1 GDP figures. Although not as poor as feared, the data still highlighted just how weak the SA economy was even before the unprecedented COVID-19 crisis hit with full force in 2020Q2. In other domestic news, a heated debate is raging about the fiscal consolidation outlined in the supplementary budget tabled on 24 June.

The most important development on the domestic front was National Treasury’s supplementary budget presented by Finance Minister Tito Mboweni on Wednesday. In short, the intention of the budget was to start a process of aligning the fiscal trajectory to the read more

The most important development on the domestic front was National Treasury’s supplementary budget presented by Finance Minister Tito Mboweni on Wednesday. In short, the intention of the budget was to start a process of aligning the fiscal trajectory to the expected fallout of the COVID-19 shock. Due to the economic fallout from the health crisis, Treasury expects tax revenue to undershoot February’s budget estimate by more than R300 billion (bn) this fiscal year.

Financial markets were caught in two minds last week as concerns about fast-rising COVID-19 infections in emerging markets, selected US states and a flare-up in China were soothed by better-than-expected economic data releases in especially the US. The global read more

Financial markets were caught in two minds last week as concerns about fast-rising COVID-19 infections in emerging markets, selected US states and a flare-up in China were soothed by better-than-expected economic data releases in especially the US. The global GDP outlook remains unusually uncertain and depends on the evolution of the COVID-19 pandemic, the government measures taken in response to the virus, and how firms and consumers respond to these developments.

After a strong rally in risky assets during May and the first week of June, global financial markets were jolted out of complacency last week. This was amid a sobering macro outlook from the US Federal Reserve (Fed), as well as concerns about a second wave of read more

After a strong rally in risky assets during May and the first week of June, global financial markets were jolted out of complacency last week. This was amid a sobering macro outlook from the US Federal Reserve (Fed), as well as concerns about a second wave of COVID-19 infections in the US. The director of the US Centers for Disease Control and Prevention cautioned that the country was ‘not out of the woods’ with COVID-19. In China, Beijing also reported a flare-up of new infections in recent days.

Confirmed COVID-19 cases in SA jumped by 15 602 last week. Over the past two weeks, confirmed cases increased from 23 615 to 48 285. Despite the concerning - albeit not unexpected - SA health trajectory, local financial markets had a solid week with the JSE read more

Confirmed COVID-19 cases in SA jumped by 15 602 last week. Over the past two weeks, confirmed cases increased from 23 615 to 48 285. Despite the concerning - albeit not unexpected - SA health trajectory, local financial markets had a solid week with the JSE and the rand exchange rate posting robust gains. The benchmark 10-year government bond yield remained largely stable at a significantly lower level than at the height of the market panic at the end of March.

While current government attention is focused on mitigating the immediate fallout from the COVID-19 crisis, last week provided some insight into the ANC’s thinking about the reconstruction of the economy post the crisis. Ominously, the governing party read more

While current government attention is focused on mitigating the immediate fallout from the COVID-19 crisis, last week provided some insight into the ANC’s thinking about the reconstruction of the economy post the crisis. Ominously, the governing party foresees an increased role for the state in driving the recovery.

With the domestic data released last week backward looking at the pre-COVID-19 economic performance, attention was focused on the SA Reserve Bank’s (SARB) policy interest rate decision on Thursday. After the SARB delivered in line with expectations (see read more

With the domestic data released last week backward looking at the pre-COVID-19 economic performance, attention was focused on the SA Reserve Bank’s (SARB) policy interest rate decision on Thursday. After the SARB delivered in line with expectations (see below), the key event of the week was last night’s address by President Cyril Ramaphosa. The speech outlined the next phase of government’s COVID-19 response. The headline announcement was that from 1 June, the alert level for the entire country will be lowered to Level 3 from Level 4.

Increasingly, a V-shaped global GDP recovery from the COVID-19 crisis seems unlikely. This will weigh on the South African growth outlook, especially as the costs of the strict domestic lockdown mount. read more

Increasingly, a V-shaped global GDP recovery from the COVID-19 crisis seems unlikely. This will weigh on the South African growth outlook, especially as the costs of the strict domestic lockdown mount.

The past week was dominated by increasingly robust debate in newspaper and online columns, letters, as well as social media, on the pros and cons of government’s approach to fighting COVID-19. While this was going on, we saw a clear divergence between the read more

The past week was dominated by increasingly robust debate in newspaper and online columns, letters, as well as social media, on the pros and cons of government’s approach to fighting COVID-19. While this was going on, we saw a clear divergence between the performance of financial markets and dreadful, albeit not totally unexpected, incoming data on the state of the real economy.

Last week’s domestic headlines were again dominated by the devastating impact that the lockdown restrictions are having on the SA economy. Furthermore, S&P Global Ratings, in an out-of-schedule review, lowered SA’s long-term foreign-currency sovereign credit read more

Last week’s domestic headlines were again dominated by the devastating impact that the lockdown restrictions are having on the SA economy. Furthermore, S&P Global Ratings, in an out-of-schedule review, lowered SA’s long-term foreign-currency sovereign credit rating to three notches below investment grade.

Over the weekend, government released further details on the gradual reopening of the SA economy. Nationally, the country is set to move from Level 5 (the strictest form of lockdown) to Level 4 on Friday. However, aggregated country-wide economic activity read more

Over the weekend, government released further details on the gradual reopening of the SA economy. Nationally, the country is set to move from Level 5 (the strictest form of lockdown) to Level 4 on Friday. However, aggregated country-wide economic activity will remain constrained for some time to come. With a steeper GDP decline in Q2 and less normalising in Q3, a decline of 9%+ in 2020 GDP seems more likely than the already dismal 7% we projected before.

In this week’s edition, we review the latest Chinese data releases for 2020Q1, and in particular what (if anything) this tells us about how the SA recovery from COVID-19 may progress. We also look ahead to a likely (overdue) SA fiscal support package expected read more

In this week’s edition, we review the latest Chinese data releases for 2020Q1, and in particular what (if anything) this tells us about how the SA recovery from COVID-19 may progress. We also look ahead to a likely (overdue) SA fiscal support package expected to be announced this week. The focus is mainly on the fiscal implications of this, including the options to fund what will be a substantial budget deficit in 2020/21.

Increasingly, it is becoming clear that a return to normality without any restrictions on movement and without social distancing is not weeks away, but rather months. We probably need to get past the winter months first. Therefore, despite already forecasting read more

Increasingly, it is becoming clear that a return to normality without any restrictions on movement and without social distancing is not weeks away, but rather months. We probably need to get past the winter months first. Therefore, despite already forecasting a historic GDP decline of 7% in 2020, the risks to our latest forecast remain firmly on the downside.

The severe economic fallout from COVID-19 restrictions continued last week. One way to think about this is that SA is experiencing a triple sudden stop: A massive decline in global demand for our exports, a lockdown-induced plunge in domestic production (and read more

The severe economic fallout from COVID-19 restrictions continued last week. One way to think about this is that SA is experiencing a triple sudden stop: A massive decline in global demand for our exports, a lockdown-induced plunge in domestic production (and demand), as well as a steep decline in foreign capital inflows to SA. One of these sudden stops at a time would be bad enough, three at the same time are both rare and particularly damaging.

Late Friday night, Moody’s downgraded SA’s foreign and local currency sovereign credit rating to Ba1 – one notch below investment grade – following a scheduled ratings review. Tragically, SA also recorded its first COVID-19 deaths and cases surged to over 1 read more

Late Friday night, Moody’s downgraded SA’s foreign and local currency sovereign credit rating to Ba1 – one notch below investment grade – following a scheduled ratings review. Tragically, SA also recorded its first COVID-19 deaths and cases surged to over 1 200 during the week.In financial markets, the SA Reserve Bank (SARB) announced it would start buying government bonds in the secondary market (i.e. from banks, asset managers, etc.) across the yield curve and implemented other measures in an attempt to “provide liquidity into the market, to stabilise markets and to ensure their orderly functioning”.

The containment measures/shutdowns to curb the spread of Covid-19 and the subsequent stimulus response from monetary and fiscal authorities to limit the economic damage intensified last week. On both fronts, the response remains extraordinary. A growing list read more

The containment measures/shutdowns to curb the spread of Covid-19 and the subsequent stimulus response from monetary and fiscal authorities to limit the economic damage intensified last week. On both fronts, the response remains extraordinary. A growing list of governments appealed to citizens to only leave their homes for work and essential (food and pharmaceutical) shopping. Large parts of the services and entertainment sectors (restaurants, bars/pubs, theatres, etc.) in many countries have been closed until further notice. Major vehicle manufacturers temporarily shut operations in Europe, the US and locally, while major global airlines continued to cancel routes. For a second week in a row, monetary and fiscal authorities across the globe announced aggressive measures to support households and the business sector through these very trying times. A raft of central banks, including the SA Reserve Bank (SARB), reduced policy interest rates.

In the wake of the World Health Organisation (WHO) raising the status of the Covid-19 outbreak to a global pandemic and a fast-rising number of confirmed Covid-19 cases (including reports of internal transmission) in SA, President Cyril Ramaphosa declared a read more

In the wake of the World Health Organisation (WHO) raising the status of the Covid-19 outbreak to a global pandemic and a fast-rising number of confirmed Covid-19 cases (including reports of internal transmission) in SA, President Cyril Ramaphosa declared a national state of disaster on Sunday. In order to contain the spread of the virus, Ramaphosa announced a number of extraordinary measures. Top of the list was to impose a travel ban on foreign nationals from high-risk countries such as Italy, Iran, South Korea, Spain, Germany, the US, the UK and China. The ban kicks in from Wednesday with the list of countries including some of SA’s most significant inbound tourism markets. Although we are moving past the peak summer tourism period in SA, these measures will have a dramatic negative impact on the domestic tourism sector. The announced measures, also including the prohibition of gatherings of more than 100 people, are in line with many other countries who have announced travel restrictions, business closures and encouraged social distancing to contain the spread of Covid-19. The US, for example, implemented a travel ban on visitors from Europe. The ever-increasing global concern about the virus saw the carnage on global stock markets intensify last week. The financial market selling was indiscriminate with some global stock markets, including the JSE, plummeting by 10-20%. Even traditional safe-haven assets such as gold and US treasuries were under pressure as investors scrambled to cover losses on their equity portfolios. The extent of the market panic was reminiscent of the darkest days of the global financial crisis in 2008. A sustained market recovery may only commence once the rate of global infections peak. This is likely some way into the future. In reaction to the broad-based clampdown on economic activity and the tightening of financial conditions, global real GDP growth forecasts continue to be slashed. While signs are emerging of a production recovery (when looking at daily tracking indicators such as coal consumption) in China, some forecasters are now calling for meaningful GDP contractions in the US and the Eurozone during the first half of 2020. SA will feel the brunt of this, especially against the backdrop of a rising domestic electricity constraint and the domestic virus containment measures announced on Sunday. Indeed, last week we sharply revised down the real GDP forecast for SA in 2020 to a contraction of 0.1% (clients can find the Forecast Update here). Despite this, the GDP outlook is a fast-moving target with further drastic downward revisions increasingly likely. It is not a stretch of the imagination to think that we may see a repeat of 2009 when the economy shrank by 1.5% for the entire year. In an attempt to calm financial markets and support the real economy, a number of central banks, including the US Fed (for the second time in less than two weeks), Bank of England (BoE), Bank of Canada and Reserve Bank of New Zealand aggressively reduced their key policy interest rates after emergency meetings last week. At a scheduled meeting, the European Central Bank (ECB) said it will implement additional quantitative easing measures. A number of countries also announced fiscal stimulus packages. These include increased funds for the health sector, a boost to infrastructure outlays, as well as cash transfers to households and the small business sector. Given fast rising debt levels, the SA government is unable to provide major fiscal stimulus to the domestic economy. However, Ramaphosa said last night that Cabinet was in the process of finalising a comprehensive package (including fiscal measures) of interventions to mitigate the expected impact of Covid-19. The fast-worsening GDP outlook puts a lot of focus on this week’s SA Reserve Bank (SARB) interest rate meeting. Besides the dire GDP dynamics, a benign inflation outlook provides sufficient room for the SARB to be aggressive, in our view. Notwithstanding likely SARB concerns about the extent of recent rand weakness, our out-of-consensus call is for a 50bps repo rate cut on Thursday. In these extraordinary times, it is not inconceivable that the SARB will announce an even larger reduction, i.e. 75 to 100bps.

Coronavirus fears continued to dominate economic headlines last week, with a number of institutions slashing their global real GDP forecasts for 2020. This comes on top of an already poor SA growth outlook. The growing risk is that SA GDP could contract for read more

Coronavirus fears continued to dominate economic headlines last week, with a number of institutions slashing their global real GDP forecasts for 2020. This comes on top of an already poor SA growth outlook. The growing risk is that SA GDP could contract for the entire calendar year. The US Federal Reserve (Fed), in reaction to virus-related growth fears, cut the benchmark interest rate by 50 basis points. The Fed was not alone in its reaction with the central banks of Australia and Canada also lowering their main interest rates. Meanwhile, the rand came under pressure on the back of a poorer GDP outcome for 2019Q4. The local currency saw further weakness after the first SA case of the coronavirus was announced on Thursday, as well as a continued risk-off global environment despite the Fed rate cut.

Across the board, domestic asset prices were under tremendous pressure last week. The rand exchange rate, JSE and SA bonds all lost value. For starters, local financial markets tracked international markets lower as coronavirus-related fears mounted as read more

Across the board, domestic asset prices were under tremendous pressure last week. The rand exchange rate, JSE and SA bonds all lost value. For starters, local financial markets tracked international markets lower as coronavirus-related fears mounted as infections outside of China rise. Over the weekend and this morning, the first set of Chinese data for February illustrated the severe impact that the measures taken to contain the spread of the virus had on Chinese output and exports. Looking forward, the trend for financial markets is likely to be determined by the rate at which global infections spread, but also the response from policy makers. On that note, the US Federal Reserve (Fed) released a brief statement on Friday, saying that it was monitoring the situation and the implications for the macro outlook. Furthermore, the Fed is ready to provide support to the economy if deemed necessary. The statement raised expectations that the US central bank could soon cut the policy interest rate.

After a relatively quiet week on the domestic front, market participants and consumers will be glued to their screens on Wednesday when Finance Minister Tito Mboweni is set to deliver the 2020 Budget speech. Along with the problems at Eskom, the budget will read more

After a relatively quiet week on the domestic front, market participants and consumers will be glued to their screens on Wednesday when Finance Minister Tito Mboweni is set to deliver the 2020 Budget speech. Along with the problems at Eskom, the budget will be key in shaping the country’s fortunes during 2020. This is particularly the case as all three major credit rating agencies have SA’s credit rating on a negative outlook. If the budget fails to outline a credible fiscal consolidation trajectory over the medium term, ratings downgrades could follow. This will raise the cost of funding in SA, dealing a further blow to depressed business and consumer confidence. The budget is expected to raise the tax burden of the economy, but we do not expect (as some analysts do) a hike in the value added tax rate. Instead, the tax measures are likely to be focused on the personal income tax brackets, as well as higher excise and sin taxes. Key to the budget will be the extent to which the Treasury outlines a slower rise in the public sector wage bill than was assumed in the October fiscal update (MTBPS). This will be crucial if Treasury is to achieve the required savings of at least R150bn highlighted in the MTBPS. In our view, it will be hard to achieve this target. Therefore, we expect that the main budget deficit will average a worrying 6.5% of GDP between 2019/20 and 2021/22. If this turns out to be the case, downgrade risks will rise with large swings on financial markets likely through the week. Clients can look forward to a detailed budget analysis note by early Thursday morning. Regarding this edition, the domestic section briefly reviews the January CPI data and Moody’s downgrade of SA’s real GDP growth forecast. Internationally, we briefly look at the latest flash Purchasing Managers’ Indices (PMIs) for the Eurozone, the US and Japan. The Markets section tracks the continuing impact of the coronavirus outbreak on global risk sentiment.

Last Thursday, President Ramaphosa delivered his State of the Nation address (Sona) to parliament. The statement gave recognition to the economic challenges SA currently face, especially regarding electricity supply. More emphasis was placed on the role of read more

Last Thursday, President Ramaphosa delivered his State of the Nation address (Sona) to parliament. The statement gave recognition to the economic challenges SA currently face, especially regarding electricity supply. More emphasis was placed on the role of the private sector to help solve these challenges. Read more in the Current affairs section. On the domestic data front, Stats SA released a set of key economic indicators for December 2019, thereby completing the picture of Q4 and the full year. Overall, these numbers point towards a high probability for another quarterly GDP contraction during Q4. Internationally, GDP growth also stalled in the UK and Germany during the fourth quarter of 2019. The weak performance was driven by ongoing Brexit uncertainty and a slowdown in international trade. Besides these, consumer data from the US points to strong spending that is pushing up prices. Meanwhile, financial markets started to move past the coronavirus scare as stock prices in Europe reached new highs and commodity prices increased.

After a very poor performance in 2019, it is increasingly apparent that SA GDP could contract again in 2020Q1. The impact of the coronavirus in China may push global GDP growth (measured quarter-on-quarter) to the weakest pace since the global financial read more

After a very poor performance in 2019, it is increasingly apparent that SA GDP could contract again in 2020Q1. The impact of the coronavirus in China may push global GDP growth (measured quarter-on-quarter) to the weakest pace since the global financial crisis. This will have adverse spillovers to SA exports. Domestically, a week of continuous load shedding with more to come suggests that mining, manufacturing and electricity output will be under a lot of pressure in the first quarter. Concerns about the growth impact of the coronavirus continued to weigh heavily on certain industrial commodities and oil last week. Chinese stock markets also remained depressed. Global share markets, however, managed to increase last week amid news that China is rolling back some US import tariffs and a market-friendly address by US President Donald Trump.

Global and domestic GDP growth concerns intensified last week as the coronavirus continued to spread and load shedding returned in SA. On Thursday, the World Health Organisation declared the virus outbreak a global crisis. However, Chinese officials expressed read more

Global and domestic GDP growth concerns intensified last week as the coronavirus continued to spread and load shedding returned in SA. On Thursday, the World Health Organisation declared the virus outbreak a global crisis. However, Chinese officials expressed confidence that the rate of new infections could peak within the next week or so. Uncertainty about the duration of the outbreak weighed heavily on global financial markets with stock markets and emerging market currencies (including the rand) suffering big losses

The sentiment on global financial markets was dampened last week by the outbreak of a respiratory virus in China. In order to prevent its spread, travel bans were put in place across China during a time of the year (Lunar New Year celebrations) when travel read more

The sentiment on global financial markets was dampened last week by the outbreak of a respiratory virus in China. In order to prevent its spread, travel bans were put in place across China during a time of the year (Lunar New Year celebrations) when travel normally peaks. Depending on the length of the travel restrictions, it is set to dampen economic activity in China, raising concerns about the demand for commodities, luxury goods, etc.

With activity levels starting to pick up after the holidays, there was some relief that load shedding was absent last week. Besides the SA Reserve Bank’s (SARB) unexpected 25bps interest rate reduction (discussed in the domestic section), local newsflow read more

With activity levels starting to pick up after the holidays, there was some relief that load shedding was absent last week. Besides the SA Reserve Bank’s (SARB) unexpected 25bps interest rate reduction (discussed in the domestic section), local newsflow focused on potential further private sector job losses, with a number of companies reporting that retrenchments may be inevitable in the current poor growth environment. Internationally, China and the US signed the first phase of the newly negotiated trade deal. This could be important for China, which saw its economic growth rate slow down to a 29 -year low in 2019. Meanwhile, with the exception of the manufacturing sector, the US economy seems to be weathering the trade storm. Among other factors, this was reflected in recent strong retail sales numbers. In financial markets, resource companies on the JSE did well last week as the price of platinum group metals (PGMs) continued to surge and the rand exchange rate weakened.

If the first two weeks of 2020 are anything to go by, it is likely to be another extremely challenging year for the SA economy. Hope of an acceleration in real GDP growth towards 1% is already fading, with forecasts being revised down. The BER macro forecast read more

If the first two weeks of 2020 are anything to go by, it is likely to be another extremely challenging year for the SA economy. Hope of an acceleration in real GDP growth towards 1% is already fading, with forecasts being revised down. The BER macro forecast will be updated this week against the backdrop of renewed electricity load shedding at the start of the year, the resignation of Eskom chairman Jabu Mabuza as the power utility becomes entangled in ANC factional battles, and renewed global geopolitical uncertainty.