Unity Tested, GNU in Focus

The economy showed marginal growth in Q1 2025, with real GDP increasing by just 0.1%, down from 0.4% in Q4 2024. Growth was primarily driven by the agriculture, forestry, and fishing sectors, resulting in modest year-on-year growth of 0.8%. The private sector economy showed signs of fragility in June, as the S&P Global PMI remained barely within expansion territory. In addition, business confidence fell to its weakest level in almost four years. The current account deficit narrowed to R35.6 billion in Q1, compared to R39.3 billion in Q4 2024. This improvement was also supported by the improved terms of trade (including gold) as the rand price of exported goods and services increased by more than that of imports. According to data from NAAMSA, the vehicle market grew for the ninth consecutive month in June, with year-to-date sales up 13.6%, as South Africans continue to visit showrooms, driven by declining interest rates and an influx of affordable brands.

In June, President Cyril Ramaphosa unexpectedly dismissed DA Deputy Minister Andrew Whitfield for failing to obtain prior approval for an international trip taken in February. The decision has heightened tensions within the Government of National Unity (GNU), particularly between the ANC and the DA. While the party chose not to exit the GNU, it withdrew from the National Dialogue and refused to support budget allocations for ministers accused of corruption.

Headline inflation for the year ending May 2025 printed at 2.8%, unchanged from the previous reading and slightly above market expectations. The main contributors were housing and utilities, while transport saw annual deflation of 4.8%, driven by a 14.9% year-on-year drop in fuel prices. Core inflation, which excludes volatile food and energy prices, remained steady at 3.0%, indicating stable underlying inflation pressures. Producer inflation slowed to 0.1% in May from 0.5% in April, below expectations due to weaker output in food, beverages, and tobacco products. The Reserve Bank is reviewing the current 3-6% inflation target range and has published a detailed report, emphasizing that now is an opportune time to consider a change. While market participants generally support lowering the target, opinions differ on the costs of achieving it. The market now awaits a response from the National Treasury.

In the second quarter of 2025, domestic assets delivered positive returns, with bonds underperforming equities. The FTSE/JSE All Bond Index rose by 5,9% over the quarter. The rand strengthened by 3.1% against a weaker US dollar to R17.7 but declined by 5.4% against a stronger euro. The FTSE/JSE SA Listed Property Index gained 9.1%, while the FTSE/JSE All Share Index increased by 10.2%.