SONA: Echoes of the past, whispers of change

Editor: Lisette IJssel de Schepper | Contributors: Romano Harold and Nicolaas van der Wath


This week was relatively quiet on the economic data front, although financial markets were still riding the wave of Friday’s bumper US jobs report heading into the week. The strong jobs data and cautious remarks by US Federal Reserve (Fed) Chair Jerome Powell over the weekend led traders to scale back expectations for the first rate cut. A cut in March now seems extremely unlikely and markets are even reconsidering May – it has long been our view that the easing would only start in the middle of this year. China’s inflation, or rather deflation, data also grabbed the headlines this week as the economy saw its fourth straight month of declining prices – for this, and more on the global PMIs, see the international section. On the domestic data front, Stats SA’s manufacturing production print for December was a bit disappointing. A big drop in vehicle manufacturing, especially parts and accessories, contributed to a monthly decline in output. Still, the sector is set to make a slight positive contribution to GDP following a contraction in Q3. The domestic section has more. The up to six-month postponement of the mothballing of Amsa’s two-long steel units will (for now) prevent a sharp drop in factory output in the near term.

The lack of major data releases and scheduled policy announcements in advanced economies brought (geo)political developments back to the forefront. In the Middle East, Hamas demanded a four-and-a-half-month ceasefire with a military withdrawal from Gaza and the release of at least 1 500 Palestinian prisoners, for which it would release all its hostages in return. The proposal was shot down by Israel’s Benjamin Netanyahu who said that military operations in the region would continue until they had achieved “total victory”, which he deemed likely in a few months. In the US, the Supreme Court started hearing oral arguments in a high-stakes case that could determine whether Donald Trump is eligible to run for president. The issue is an unprecedented one to deal with for the court, but experts deem it unlikely that Trump’s name will have to be removed from the ballot. For now, it seems that we will see another showdown between President Joe Biden and former President Trump in the election in November.

Politics also dominated the domestic headlines, with releases of election polling data, the Mining Indaba and, of course, last night’s State of the Nation Address (SONA). In the address, President Cyril Ramaphosa was always going to be speaking to the voters – especially given the poor polling ANC data released over the past week. In fact, the initial expectation was that Ramaphosa would also mention the date for the upcoming SA elections, but ahead of the SONA, the government confirmed that this announcement would only be made in the next two weeks. As always, the focus of the lengthy SONA was on accomplishments, including those on the sports field and cultural front by SA citizens, and broad policy priorities going forward. The important (funding) details and arguably even more important implementation plans are largely left to the Budget and respective ministers. The SONA spent some time on the ruling of the International Court of Justice on Gaza. The speech also blamed global factors as well as the ‘era of state capture’ and corruption for some of the current economic challenges and was quite frank about SA’s stark (youth) unemployment problem. It was somewhat ironic that the statement that ‘energy security is on track’ was almost immediately followed by the notification from Eskom that load-shedding would be ramped up to stage 3 (which changed to stage 4 overnight). However, it is appreciated that the SONA did not include references to smart cities or other pie-in-the-sky projects, with the speech perhaps being somewhat more relatable to many SA citizens (and voters).  Very briefly, from the perspective of an economist, a few things stood out:

  • In line with our long-term view about the SRD grant, the president said it would “extend it” (assumingly beyond the current extension to March 2025) and improve it as a first step to income support for the unemployed. The insinuation that this would be a first step instead of an outright move to a basic income grant should be received positively by the markets. While there are undoubtedly merits to a basic income grant from a societal perspective, a more incremental approach would help with affordability from the fiscus’s side – although a sustainable source of revenue would still be needed to fund it over time.
  • In the same vein, the mention that the National Health Insurance (NHI) would be implemented incrementally is also likely to be welcomed, if that means slow and steady instead of in one big shock to the system. Again, it also comes back to the affordability and, in this instance, the capability. Better outcomes are more likely with a slower approach, allowing the government to address issues of concern (for example, the number of healthcare workers).
  • The acknowledgement of the necessity of investment in transmission infrastructure and further financial pledges towards the Just Energy Transition Investment Plan was welcome, although this was nothing new or surprising. The Climate Change Response Fund (although, again, this was nothing new) could be a prudent proactive action or just be another token announcement without real realisation.
  • Some mention of reform of the freight rail system and general logistics system were expected, but the SONA did not offer anything new or concrete. There was also no mention of further bailouts or support to Transnet – this will be a keen focus in the upcoming Budget.  However, the continued focus on solutions involving a private sector element is encouraging.

In financial markets, Chinese shares rallied from five-year lows last week following an announcement by a sovereign fund that owns state-run banks and other government-controlled businesses that it would ramp up purchases of stock index funds. In the US, the S&P 500 hit a fresh all-time high and breached the 5 000 mark yesterday as markets digested a slew of company earnings reports. The record highs were despite ‘Fedspeak’ downplaying the likelihood of an imminent cut, but current robust economic data is supportive of higher prices. The local JSE did not benefit, and declined by 1% from last Thursday as the resource index was under particular pressure. Key SA export commodities also declined w-o-w. After the currency found some strength in the week before, the rand lost ground against major currencies last week while 10-year government bond yields also rose by 21bps since last Thursday.


Next week, we will see more high-frequency data for December, firming up the Q4 GDP forecast. It will be interesting to see whether there is any impact of the intensified port disruptions on mining output (with higher stocks necessitating lower production). The domestic trade data is likely to remain subdued with the SA consumer under pressure. This was reflected in the weakest festive season FNB/BER Consumer Confidence Index print in two decades as well as poor sales volumes as per the Q4 BER Retail Survey.

Global central bank watchers (to be fair, who isn’t these days) will be keeping a keen eye on the consumer (Tuesday) and producer (Friday) inflation data from the US, as well as the inflation expectations numbers that are part of Friday’s Michigan consumer sentiment survey. Consumer price inflation unexpectedly reaccelerated in December, but is set to have slowed once more in January. A similar outcome is expected in the UK, although inflation is expected to remain higher than in the US for some time. We will also see the UK GDP data for 2023Q4 and there is a real possibility that the economy slipped into a shallow technical recession after it contracted by 0.1% q-o-q in Q3. In contrast, Japan is set to return to slight growth in Q4.



According to Stats SA, annual manufacturing production rose by less than expected and at the slowest pace in three months. Output was up by 0.7% y-o-y in December from an (upwardly) revised 2.5% y-o-y rise in November. The largest positive contributor was coke, petroleum products and nuclear fuel (up 23.1% y-o-y, adding 1.7%pts). In contrast, the production of parts and accessories weighed most on annual production (-21.3% y-o-y, -0.7%pts). This sector was also the biggest drag on monthly output, with delays at the port possibly to blame for the decline. Compared to November, overall seasonally adjusted (sa) manufacturing production contracted by 1.7% m-o-m in December.


According to the S&P Global PMI for SA, domestic private sector activity experienced a tough start to the year. At 49.2 in January (vs 49 in December), the headline PMI remained below the 50-point neutral mark, separating growth from contraction, for a second consecutive month. Amid weak demand, new order volumes slumped in January, marking the steepest decline in a year. Meanwhile, output contracted due to supply-side challenges caused by the port crisis in Durban. Encouragingly, purchase price and staff cost inflation eased, resulting in a relatively soft increase in selling charges.

Finally, according to the SA Reserve Bank, gross gold and foreign exchange reserves fell to a below-consensus $61.2bn in January. This follows a record high of $62.5bn in December. Gold reserves declined to $8.2bn in January from $8.3bn in December, as did foreign exchange reserves ($53bn vs $54.2bn).



The US economy has seemingly maintained its momentum and vibrancy at the start of 2024. Nonfarm payrolls released last week showed the fastest pace of job growth in a year. Jobs rose by 353 000 in January, almost double market expectations for a 180 000 gain. These numbers signal a tight labour market, explaining the monthly surge of 0.6% (7.4% annualised) in average hourly earnings, the highest in nearly two years. These are numbers that will motivate the Fed to keep interest rates high a little longer.

Meanwhile, the US S&P Global composite PMI increased from 50.9 index points in December to 52 points in January. Improvements were recorded in both the services and manufacturing PMI, with the latter surging from below 48 to 50.7 points, the highest since the middle of 2022. The increase was on the back of higher demand, also resulting in higher prices being charged to customers. The ISM surveys also showed an uptick in services (from 50.5 to 53.4) and manufacturing (47.1 to 49.1). Overall, these indicate that activity in the US economy remained very solid, despite interest rates being much higher than a year before. If consumer inflation stays sticky above the target, high interest rates might be needed for longer than expected.

In contrast, in the Eurozone, the HCOB composite PMI remained stuck below the neutral-50 level for the eighth consecutive month, edging up only marginally in January to 49.7 (from 49.6 before). The uptick was mostly driven by an improvement in the manufacturing sector, while the services sector contracted even more. Despite the composite index still being in a contractionary area, input and output prices accelerated at their fastest pace in eight months. Similar to the US, a consumer inflation rate lingering above the 2% target means that the interest rate will not be reduced too quickly – although the weaker economic environment in Europe may call for cuts.


Meanwhile, in China the Caixin composite PMI was virtually unchanged in January at 52.5 index points (compared to 52.6 in December, a seven-month high). It also marks the 13th consecutive month that the index was above the neutral-50 level, an indication of growth in economic activity levels. The survey showed that input cost pressure subsided more while selling prices continued to decline as supply growth exceeded consumption growth. This is worrying after China’s official annual consumer inflation rate came in at -0.8% in January, down from -0.3 in December. This was the fourth month of declining prices and the biggest contraction since 2009, mostly on account of lower food and energy costs. Core inflation remained slightly positive. Producer prices declined for a 16th month. Prolonged deflation could hurt corporate earnings and weigh on the stock market amid weak consumer and business confidence.


Lisette IJssel de Schepper
Tel: +27 (21) 808 9777 | Email:

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Name: SONA: Echoes of the past, whispers of change