Cautious optimism
Second quarter GDP broadly met expectations, printing at 0,4% over the period. The absence of loadshedding and improvement in logistics supported the production side, while increased consumer spending helped on the expenditure side. Gross fixed capital formation remained lacklustre. The current account narrowed over the second quarter, supported by an improved goods trade surplus, which benefitted from higher export prices. While the prints were still low relative to history, both business and consumer confidence improved in the third quarter as cautious optimism around the government of national unity, lower inflation and the prospect of lower interest rates influenced sentiment. Following a post-financing assessment visit to South Africa in July, the IMF released their report in September outlining various recommendations on necessary reforms, as well as steps to stabilise and consolidate debt. This included 3,0% of expenditure cuts over three years to stabilise debt. Eskom applied to NERSA for tariff increases over the next three years, with the entity applying for a 36,2% increase in 2026. Electricity costs remain a pressure point for households and inflation. 

The BER third quarter inflation expectation survey recorded a decline in inflation expectations across various participating groups (analysts, households, businesses, and unions), with expectations in the medium term at 4,8%.

Headline inflation for the year to August 2024 moderated to 4,4% from 4,6% the previous month, trending below the SARB’s midpoint of 4,5%. Core inflation also declined to 4,1% from 4,3%. A decrease in fuel prices was the most significant contributor to the monthly decline, while food inflation edged higher to 4,1% y-o-y. Producer inflation for August surprised to the downside at 2,8% from a figure of 4,2% the prior month. The deflationary trends set the scene for a constructive policy meeting. The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) cut the bank’s key lending rate by 25bps, the first cut for this cycle. The committee lowered the inflation profile over the forecast period with the accompanying statement pointing to balanced risks to the inflation outlook. 

With this backdrop, domestic assets delivered positive results in the third quarter. The FTSE/JSE All Bond Index gained 3,9% over the month, benefitting from strong momentum in global bonds and cooling local inflation prints. The Rand appreciated against the US dollar by 3,1% over the month and 5,0% over the quarter.