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It was a busy week for local data releases, much of which painted a bleak picture of SA’s economy. Not only was first-quarter GDP growth dismal, but 2024 growth was also revised lower to just 0.5%. Depressingly, private fixed investment declined in Q1 after a brief glimmer of activity at the end of last year. Moving to Q2, despite SA financial assets gaining some lost ground, this week’s RMB/BER Business Confidence Index (BCI) showed sentiment remained shaky in the second quarter. A striking 60% of respondents expressed dissatisfaction with current conditions amid global headwinds and local uncertainty.
SARB Governor Lesetja Kganyago echoed the bleak picture, calling the GDP data “not a pretty picture” at a forum in Soweto. He highlighted SA’s vulnerability to global risks. Meanwhile, MPC member David Fowkes touted the benefits of a lower inflation target. With April inflation at just 2.8%, Fowkes urged seizing this moment of subdued price pressures. He noted that making the switch while inflation is low would involve less sacrifice or cost than doing so when inflation is elevated.
Globally, geopolitical tensions were heightened last week. Peace talks between Russia and Ukraine have stalled once again. The Russian delegation arrived in Turkey earlier this week for a second round of negotiations. However, progress with peace talks was unlikely after Ukraine launched a drone attack on Russian airfields this week. Indeed, on Wednesday, US President Donald Trump said Vladimir Putin told him “very strongly” in a call that he would “have to respond” to Ukraine’s recent strikes. Putin dismissed Ukraine’s calls for a ceasefire, stating that negotiations with “terrorists” were not possible. For his part, Ukrainian President Volodymyr Zelensky described Russia’s conditions for a truce as equivalent to an “ultimatum”.
Meanwhile, the humanitarian crisis in Gaza continues to worsen. The IDF has warned Gazans to avoid roads leading to aid distribution centres, calling them “combat zones” and they would do what was required to ensure that no aid reaches Hamas. International concern is growing, and on Wednesday, the UN Security Council called for an immediate and unconditional ceasefire. The US vetoed the resolution, arguing it was counterproductive and ignored Israel’s right to self-defence.
Trade tensions between China and the US re-escalated this week, with Beijing accusing Washington of "severely" violating their trade agreement just days after Trump claimed China had "totally" breached the deal. China’s Commerce Ministry criticised new “discriminatory and restrictive” measures, including US export controls on AI chips, and vowed to defend its interests. Further highlighting the strain, Trump described Chinese President Xi Jinping as “tough” and “extremely hard to make a deal with,” tempering optimism ahead of a long-anticipated call between the two leaders. That call on Thursday focused on critical trade issues such as access to vital minerals. According to official summaries, both sides agreed to continue talks, offering some glimmer of hope that the hold on the 100%+ tariffs will continue.
Meanwhile, the US doubled tariffs on steel and aluminium imports to 50% on Wednesday, particularly hitting close allies like Canada and Mexico. Canada, the top supplier of both metals to the US, warned that it would be ready to retaliate if Washington did not roll back the tariffs. The hike excludes the UK, which reached a preliminary deal with the US during the 90-day pause on broader tariff measures expiring in July.
Global trade disruptions are mounting. China’s export restrictions on critical minerals have already forced some European auto parts plants to halt production. BMW has warned that rare earth shortages are now affecting its supply chain. Back in the US, the ‘break-up’ between Trump and Elon Musk turned messy and then outright ugly this week.
In financial markets, gold rose by 1.6% as rising geopolitical and trade tensions boosted demand for the safe-haven asset. Despite global uncertainty, a lack of appetite for US assets and limited emerging market alternatives have made SA assets more appealing. Demand for local bonds has increased, pushing yields lower, while SA’s Credit Default Swap (CDS) spread dipped below 200, signalling improved investor sentiment. The JSE All Share Index ended higher, but this was in line with equity trends in the US and abroad. The rand also benefitted from a weaker US dollar, gaining 0.5% by the end of yesterday.
However, the local currency slipped slightly against the euro and pound. The European Central Bank (ECB) cut its interest rate for the eighth time in a year but indicated a likely pause ahead. ECB President Christine Lagarde struck a reassuring tone, saying the Bank is well-positioned to manage global volatility. Combined with expectations that the US Federal Reserve (Fed) may need to cut rates more than once this year due to a softening labour market, this helped the euro strengthen against the dollar.
Regarding commodities, OPEC and its allies agreed on Saturday to increase oil supply by 411 000 barrels per day in July, matching the additions for May and June. This was in line with expectations. However, late-week reports stirred fears that the group might opt for a larger hike. This downside surprise, coupled with geopolitical developments - including bombings in Russia and Iran’s reaction to a report highlighting its growing stockpile of enriched uranium - shifted market focus to reduced oil supply compared to what was expected at the end of last week. As a result, oil prices rose nearly 2% over the week. Finally, platinum and palladium saw significant gains last week, the former rising by 4.2%.
Following a data-heavy week, the domestic calendar will be quieter. The main local release is the April manufacturing production data. GDP data showed the sector shrank 2% q-o-q in Q1, and further weakness is possible with the Absa Manufacturing PMI declining in both April and May.
Internationally, the US nonfarm payrolls due later today are expected to show a slowdown in US job growth. Next week begins with China’s May CPI and PPI data. Deflation has persisted in China, and reduced US demand amid tariffs could put further downward pressure on prices. China’s vehicle sales figures are also due.
The UK will release April unemployment data on Tuesday. The Office for National Statistics reported that the jobless rate climbed to a four-year high of 4.5% in March amid slower hiring due to higher employer national insurance contributions.
Wednesday brings the US CPI for May. While inflation eased in April, it remains above the Fed’s target, keeping policymakers cautious, especially given tariff-related uncertainty. US PPI data and the University of Michigan's June consumer sentiment reading follow on Thursday. Sentiment surprised to the upside in May.
REAL GDP BARELY EXPANDS IN 2025Q1
According to Stats SA, real GDP expanded by just 0.1% q-o-q in 2025Q1. This follows downwardly revised growth of 0.4% (previously 0.6%) in 2024Q4, which meant that the economy expanded by just 0.5% (from 0.6%) in 2024, down from 0.8% in 2023. From the production side, only three (agriculture, trade and finance) of the ten industries expanded. A 15.8% q-o-q expansion in agriculture pushed GDP growth into positive territory. Looking at GDP on the expenditure side, household consumption expanded by 0.4% q-o-q, adding 0.3% pts to GDP. Government consumption declined for a third consecutive quarter, albeit the rate of decline slowed. Gross fixed capital formation contracted by 1.7% q-o-q, following a drop of 0.5% in 2024Q4. Private capex remains 15% below the pre-COVID levels. Clients can read our Comment on the GDP data here.
The latest data from the SARB showed that SA’s account deficit narrowed to R35.6 billion in 2025Q1, from a revised R39.3 billion in 2024Q4 (previously, R31.6 billion). The current account deficit as a ratio of GDP remained at 0.5% in 2025Q1. The trade surplus fell slightly to R221.2 billion in 2025Q1 from R226.4 billion in 2024Q4 as the value of imports (3.6%) increased more rapidly than exports (2.9%). Meanwhile, the shortfall on the services, income, and current transfer account narrowed to R256.8 billion from R265.7 billion in 2024Q4, driven by smaller services and income deficits that offset a wider current transfer gap. As a result, the overall deficit in services, income, and current transfer accounts as a percentage of GDP narrowed from 3.6% in 2024Q4 to 3.5% in 2025Q1.
Not boding well for Q2 GDP was that the RMB/BER BCI declined by five points to 40 in 2025Q2 as the recovery that started in 2024Q2 stalled. This implies that only four out of ten business respondents in the most cyclically sensitive sectors of the economy were satisfied with prevailing business conditions. Only wholesale traders saw a rise in confidence, with declines across all other business segments. However, despite the declines, the confidence of retailers and new vehicle dealers remained above the long-term averages.
The Absa PMI declined to 43.1 points in May from 44.7 points in April, remaining in contractionary territory for a seventh consecutive month. There were some improvements in business activity and new sales orders, but the supplier deliveries index pushed the headline PMI lower. The S&P Global South Africa PMI was more positive and rose to 50.8 points in May from 50 points in April as output and new orders rose for a second consecutive month. This is the first time the PMI has been in growth territory since November 2024. Inventories also experienced solid growth as delivery times improved. However, the improvement in delivery times may have been caused by a lack of pressure as exports declined significantly. Like the Absa PMI, it suggests softening price pressure.
According to naamsa, new vehicle sales in May 2025 came in at 45 308 units, up 22% y-o-y. This follows growth of 11.9% in April 2025. Out of the total reported industry sales of 45 308 vehicles, 88.4% represented dealer sales, while 6.8% represented sales to the vehicle rental industry, industry corporate fleets (3%), and government sales (1.8%). Exports, on the other hand, performed poorly and fell by 14.6% y-o-y.
Finally, according to Stats SA, electricity production was flat y-o-y in April. Seasonally adjusted electricity generation increased by 0.1% m-o-m in, following 0.9% in March 2025 and -2.8% in February 2025. Electricity consumption decreased by 2.8% y-o-y in April 2025.
As expected, the ECB cut its benchmark interest rate by 25bps, to the lowest level since November 2022. The move follows a drop in flash consumer inflation to below the ECB’s 2% target in May. Headline inflation eased to 1.9% y-o-y from 2.1% in April, driven by a slowdown in services inflation and a continued decline in energy prices (-3.6% y-o-y). The ECB now forecasts average headline inflation at 2% in 2025, down from a previous estimate of 2.3%. The lower inflation outlook, a stronger euro, and a subdued growth outlook supported the case for easing. However, the ECB warns it is nearing the end of the cutting cycle.
The ISM US Manufacturing PMI declined for the third consecutive month in May, falling to 48.5 from 48.7 in April. Demand-side indicators were mixed: while new orders and backlogs contracted more slowly, customers’ inventories and new export orders fell faster. On the supply side, the inventories index slipped into contraction as the impact of earlier tariff-related stockpiling faded. Supplier deliveries continued to contract, with the pace of decline accelerating. The imports index dropped by 7.2 points, signalling a significant pullback.
On the services front, the ISM Services PMI fell into contractionary territory for the first time since June 2024, registering 49.9 in May, down from 51.6 in April. The decline reflects growing caution among service providers, with respondents citing efforts to delay or reduce orders amid heightened tariff uncertainty as the primary factor weighing on activity.
EUROZONE MANUFACTURING SHOWS SIGNS OF RECOVERY
The HCOB Eurozone Manufacturing PMI edged up to an upwardly revised 49.4 in May, marking the slowest pace of contraction since August 2022. Meanwhile, the output index held steady at 51.5, remaining in expansionary territory for a third consecutive month. This sustained rise in production, coupled with a rebound in business confidence to its highest level since 2022, points to signs of recovery in the region’s manufacturing sector.
CHINA’S MANUFACTURING PMI FALLS INTO CONTRACTION ON WEAK DEMAND
The Caixin General Manufacturing PMI fell into contractionary territory for the first time in eight months, dropping to 48.2 in May from 50.4 in April. The decline reflects a sharp drop in new orders and manufacturing output, driven by deteriorating demand conditions. Meanwhile, the Caixin China General Services PMI increased to 51.1 in May from 50.7. This expansion was largely driven by stronger growth in new business and activity, despite declining export orders. The uptick in the services PMI was insufficient to prevent the Caixin General Composite PMI from falling to 49.6 (contraction) in May, down from 51.1 in April.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@sun.ac.za
Click here for previous editions of this publication.
Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 06 Jun 2025
