Donald Trump is back in the White House and immediately found a pen to sign a flurry of executive orders on the first day. The orders and measures Trump spoke about in speeches covered a range of topics, including migration, plans to ramp up production in the oil and gas sector, and an expansion of American territory. However, while promising (again) to overhaul the trade system, Trump made no actual changes to current trade regulations. This triggered a bit of a risk-relief rally in financial markets, helping the rand strengthen against the dollar. Trump did, however, refer to plans to impose tariffs of as much as 25% on Canada and Mexico by 1 February. Meanwhile, Europe was threatened with tariffs if it did not step up purchases of US oil and gas, but China initially escaped direct attention. Trump also said he would step up taxes, tariffs and sanctions on Russia if he does not “make a deal” to end the war in Ukraine.
Locally, there were some jitters triggered by President Cyril Ramaphosa signing the Expropriation Bill into law yesterday. However, this should, in principle, be no reason for alarm – see the reform tracker for more on this bill and updates on logistics and energy. Meanwhile, on the local data front, we saw more November high-frequency figures and December consumer inflation (CPI) data—see the domestic section. The CPI print, again, undershot expectations, with core inflation remaining particularly subdued. The lack of meaningful demand-side pressure on prices translates into a relatively benign inflation outlook for 2025, too – although there are plenty of (upside) risks to flag. For example, on the food price front, SA white maize prices rose above R7 000/tonne, which, if sustained (and experts think they will stay high through Q1), could impact the prices of grain-related food products later this year. Internationally, record-high cocoa and coffee prices will add to the pressure for some specific food and beverage categories. That said, generally, food price dynamics remain favourable. We are in the process of updating our quarterly forecast. Clients can expect to receive the summary of Economic Prospects and updated forecast sheets by early next week.
Global financial markets were generally relieved that there was no direct action on tariffs. Bond yields retreated while the dollar weakened a bit. US stocks experienced a ‘Trump bump’ while even European equities benefitted from the renewed bullish sentiment, with the Stoxx Europe 600 hitting a record high mid-week. Chinese stocks were a notable underperformer when Trump, later in the week, said he could impose 10% tariffs from next month. Following the faster-than-expected Q4 GDP print, China did not change its benchmark interest rates. This was the third consecutive month that rates were kept unchanged. The hope is that maintaining rates at the current level (rather than cutting to support the economy/lift inflation) would help stabilise the weakening yuan. The Chinese currency has been under pressure and could slide further if Trump follows through on his tariffs on Chinese imports.
Another noteworthy announcement by Trump was the declaration of a national energy emergency in an attempt to boost drilling for oil and ramp up pipeline construction. At the same time, he paused further offshore energy leases and approvals, permits and loans for offshore and onshore wind. He also, again, pulled out of the Paris Climate Agreement. The pro-fossil-fuel stance contributed to a decline in the Brent crude oil price (amid an expectation of more production), which dipped below $79/barrel from above $82 last week. During his virtual appearance at Davos, Trump said that oil cartel Opec should lower global oil prices (and said that global central banks should lower interest rates “immediately”).
It will be a big week for monetary policy decisions. The first decision comes on Wednesday afternoon when the Bank of Canada is widely expected to cut its policy rate by 25bps. Later on the day, the US Federal Reserve (Fed) is set to keep its policy rate unchanged after still cutting by 25bps in December but signalling fewer cuts going forward. In fact, amid renewed concerns about inflation and sustained momentum in the economy propping up the labour market, the next Fed cut may only come in the middle of the year. In contrast, the European Central Bank (ECB) is expected to cut its policy rate next week Thursday and to continue easing in coming meetings. Recent comments from ECB council members suggest that the policy rate could reach a neutral level by the middle of the year as inflation is expected to moderate to target. In the emerging market space, the Central Bank of Brazil is projected to continue with the hiking cycle it started in September last year. Indeed, following a 100bps hike in December, the bank essentially promised to deliver two more similar increases in upcoming meetings, with analysts expecting further increases may be needed after that. Brazil is struggling with a depreciating currency, rising inflation expectations and lingering worries about its fiscal outlook. Brazil’s central bank is not the only major bank hiking its policy rate; earlier this morning, the Bank of Japan (BoJ) announced a 25bps increase in its policy rate. This was widely expected by markets as we came closer to the meeting with officials expecting relatively high wage increases later this year.
Closer to home, the SA Reserve Bank (SARB) is set to announce its interest rate decision on Thursday afternoon (i.e. post-Fed, but before the ECB). While inflation continues to undershoot expectations, persistent upside risks and uncertainty could make the SARB hesitant to cut its policy rate further. That said, amid improving inflation expectations and a still relatively benign inflation outlook, we believe there is scope to cut by a further 25bps. The update of the SARB’s CPI and growth forecast, their assessment of the balance of risks and the tone of the statement will help to get a better sense of the interest rate trajectory through 2025. For now, we think a further 25bps cut after January is possible, but we are less convinced of this than before and think a further 25bps cut (i.e. a third cut this year) is unlikely as the SARB seems to place significant emphasis on the upside risks to inflation.
On the data front, we will see Eurozone and US GDP figures for Q4 released on Thursday. The Eurozone flash print should be for another q-o-q expansion, although the pace of growth could have slowed from 0.4% in Q3. Sustained momentum in the Mediterranean countries is so far making up for the slowdown in the traditional growth engine (Germany). US growth is expected to remain solid, at around 3%, from 3.1% in Q3. Also important for the US will be the Fed’s preferred measure of inflation for December, which is due on Friday.
For SA, we see the usual batch of month-end data (credit growth, trade and budget balance) as well as producer price inflation (PPI), but there will also be interest in the Income and Expenditure Survey (IES) 2022/23 statistical release published by Stats SA on Tuesday. The IES is a household-based survey that tracks household purchases, consumption and spending patterns, income sources, and living conditions across the country. Importantly, the IES allows for the adjustment of the consumer price index (CPI) basket and weights. The January 2025 CPI release (due in February) will reflect the updated basket and some further changes – including a rebasing of the reference period to December 2024 and making some changes to the classification of certain goods and services.
Trump's election as president of the US has changed global geopolitics around climate change. This could contribute to reduced international pressure on SA to decarbonise and may potentially change the political consensus that a rapid path to reducing reliance on coal-based energy sources is important. That said, Dr Dion George, the Minister of Environment, Forestry and Fisheries issued a statement yesterday afternoon committing SA to the Paris Agreement.
On the flip side, Trump’s actions may increase the cost of coal and, with it, the cost of coal-based electricity. Renewable energy remains the least expensive source of energy for SA – particularly as the Northern Cape ranks amongst the best areas in the world for sun exposure and wind-generation potential.
The renewable energy debate is thus increasingly a cost one – to keep energy costs down, solar and wind power will remain the economically sensible alternative. It may prove to be a win-win for SA in that the international penalties for high carbon emissions may be reduced, but at the same time, the country will benefit from a shift to cheaper renewable energy.
Transnet announced steps it intends taking to improve logistics, indicating progress in lifting the rail and ports constraint through key private-public partnerships:
President Ramaphosa signed the Expropriation Bill into law on Thursday after a long public consultation and parliamentary process. The initial process to replace the Expropriation Act of 1975 was already initiated in 2004 and both houses of parliament passed the Bill in March 2024. The new expropriation act clearly defines under which circumstances the State and Organs of the State can expropriate land in the public interest. The process of compensation and engagement with owners of land or property to be expropriated is also outlined clearly. The State always had the power to expropriate land for roads, rail, dams, etc., and therefore, the new Act only aims to bring order and strict guidelines for the expropriation process. The new Act should, therefore, not be confused with the “Expropriation without Compensation” principle that was actively debated in 2017/18, which could have resulted in a change to Section 25 of the Constitution if it was successful. Indeed, the Expropriation Bill's provisions are subject to the provisions of Section 25 of the Constitution (which has not been amended) and require that compensation must be just and equitable, striking an equitable balance between the public interest and the rights of those affected, having regard to all relevant circumstances. This means that even though R Nil compensation can be awarded after all circumstances are considered, the end result must still be just and equitable. While the definition of expropriation will still need to be applied and interpreted by the courts, there is no reason to be alarmed by the Act being signed into law by the President.
Positively, the rate of increase in annual CPI inflation accelerated to ‘just’ 3.0% in December, up from 2.9% in November. This was below our and the consensus forecast. The main contributors were miscellaneous goods and services, and housing and utilities. CPI core (which removes volatile energy and food prices) similarly came in at 3.6%, below expectations of 3.8%. Relative to our expectations, the main miss was Owner’s Equivalent Rent (OER), which was surveyed in December and came in at just 0.3% m-o-m (2.8% y-o-y). This component, which accounts for 15% of the CPI basket and serves as a key measure of demand-driven inflation, remains notably subdued. Food inflation also surprised to the downside. This helps keep the 2025 inflation forecast fairly subdued and offers an encouraging signal ahead of next week’s MPC meeting that a further rate cut should be on the cards.
Stats SA published high-frequency data for mining production, retail sales, motor trade sales, and wholesale trade sales. Following the unexpected 28.8% drop in agricultural gross value added, which pushed Q3 GDP into contraction, November results are useful in tracking a potential Q4 recovery.
Mining production experienced a marginal decline of -0.2% m-o-m in November (s.a.), an improvement from -2.8% previously. This brings the y-o-y change to -0.9%, well below expectations for 0.4% expansion. A decline in gold production shaved 1.5% pts of growth. Barring a steep decline in December, mining should still add positively to Q4 GDP.
In consumer-focused data, positively, retail trade sales grew by 0.8% m-o-m, in November, slower than October’s 1.6%, but bringing the y-o-y figure to 7.7%, above expectations of 5.1%. Growth was seen across all categories except for hardware, paint, and glass. Conversely, wholesale trade sales (real, s.a.) declined by -3.1% m-o-m (+3.5% in October), which translated to a 7.3% y-o-y decline. With the exception of October, wholesale trade has contracted on an annual basis for each month in 2024 so far. Motor trade sales declined by 0.8% m-o-m (s.a.) (+2.6% in October) and -2.2% y-o-y. New vehicle sales were a positive contributor, but this was largely offset by a decline in fuel sales. Thus far, the internal trade data paints a mixed picture for Q4, with retail sales performing well but wholesale and motor trade performing poorly. Barring a sharp bounce back in December, wholesale and motor trade are set to contract on a quarterly basis.
Looking at real retail sales over time, they reflect a sustained upward trajectory since March 2024, with sales consistently rising over the past nine months. An examination of seasonally adjusted and real-term data highlights pronounced seasonal effects within the series, with sales spiking during November (Black Friday) and December (festive season).
This data is sourced from the beta version of the BER Data Playground, which is free to use and has selected data from the SARB, Stats SA, ASISA, Eskom, and Transnet.
The ZEW indicator of economic sentiment for Germany slipped to a below-consensus 10.3 in January, down 5.4 points from December 2024. This deterioration reflects a second consecutive year of contracting growth (in 2024), rising inflationary pressures, and uncertainty in both domestic politics and geopolitics. Meanwhile, contrary to expectations of a slight decline, the Eurozone ZEW indicator of economic sentiment rose by one point to 18 in January. Despite this modest uptick, the state of the EZ’s largest economy, Germany, continues to weigh on overall sentiment in the region.
Consumer confidence for the Eurozone for January was in line with expectations, ticking up from -14.5 to -14.2. While still negative, the recent readings are much better than the -28.8 recorded during the worst of the energy crisis following the Russian invasion of Ukraine.
According to the Office of National Statistics, the unemployment rate in the UK rose to an above-consensus 4.4% in the three months to November 2024. After holding steady at 4.3% for two consecutive periods, this marks the highest unemployment rate since the three months ending May 2024. At the same time, average weekly earnings accelerated faster than expected by 5.6% y-o-y in the three months to November, up from 5.2% y-o-y in the previous period. Although wage growth remains an inflationary concern, a softening labour market and disappointing GDP growth in November (0.1% m-o-m) have increased market bets that the Bank of England (BoE) will lower its benchmark rate by 25bps at its next meeting in early February.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
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