(MENAFN- Investor Ideas) Investorideas ( ), a go-to platform for big investing ideas releases market commentary from Ahmad Assiri Research Strategist at Pepperstone.
South Africa's economic horizon signals modest growth amid persistent challenges.
Real GDP is expected to remain subdued, with quarterly growth hovering between 0.5% and 0.7% from Q3 2024 to Q4 2024. By 2025, year-on-year GDP growth is anticipated to inch up from 1.4% to 1.9%.
In September, the South African Reserve bank SARB cut the interest rate by 25 basis points to 7.75%-the first reduction after rates hit a 15-year high. This unanimous decision was supported by easing inflation. Inflation is set to ease from 5.5% to around 3.9% by Q3 2024, bolstered by SARB's forecasts of average inflation rates of 4.6% in 2024 and 4.4% in 2025. Markets expect further cuts in November as inflation trends downward and growth concerns persist. Nonetheless, we believe the monetary easing cycle in South Africa is shallow compared to the pace and magnitude seen in other major markets. This restrained approach could support a stronger rand, benefiting from its status as a risky currency.
Yet, vulnerabilities in mining and manufacturing production are becoming noticeable, reflected in sector growth projections and forthcoming payroll data. These factors may dampen the positive economic outlook heading into late 2024 and persist into 2025.
Unemployment remains a critical concern, expected to stay above 32%. Fiscal consolidation is underway, with the budget deficit projected to improve from -5.9% of GDP in Q4 2023 to -4.4% by Q1 2026. The rand has weakened to a year-to-date low near the 17 level against the U.S. dollar and is projected to weaken slightly further, reaching an exchange rate of 17.79 by 2025, as indicated by market consensus. Recession risk stands at 35%, underscoring the importance of SARB policies in tackling the current economic landscape.
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