Last week, Private Sector Credit Extension (PSCE) data that showed that growth moderated more than expected in January, with households still constrained by the pressures of high inflation and interest rates, while an announcement by Sasol that it will cut natural gas production in June 2026 raises risks to South Africa’s manufacturing sector.
International Market Developments
US GDP for Q4:23 came in at 3.2% q/q (second estimate), from a previous estimate of 3.3% q/q and 4.9% q/q in Q4:23. The US economy grew by 2.5% in 2023, from 1.9% in 2022. The IMF expects GDP growth to come in at 2.1% in 2024.This is more than twice its forecasts for growth in the major advanced economies of Japan, Germany, the UK, France, and Italy.
The World Trade Organisation (WTO) Ministerial Conference took place last week in the UAE. Head of the WTO Ngozi Okonjo-Iweala noted that global commerce, after proving to be resilient through the Covid pandemic, is performing weaker than estimated. This comes on the back of multiple economic headwinds and a “political tilt toward protectionism.” He further noted that demand is sluggish across most major economies, barring the US and India. Wars and climate-related problems are “impinging on the supply side.” The WTO expects trade volumes for 2023 to be lower than the October 2023 forecast for 0.8% growth, and the 3.3% trade forecast for 2024 is likely to be too optimistic.
Local Market Developments
The release of Private sector credit extension (PSCE) data showed that growth moderated more than expected in January, to 3.16% y/y, from 4.94% y/y in December. The credit trends remain quite weak and well below inflation with the expectation that they will continue to drift sideways in the near term. Credit demand by households showed that they remain constrained and are increasingly relying on unsecured credit to supplement their incomes to deal with the pressures of high inflation and interest rates.
South Africa faces an increased risk of running out of natural gas in two years after Sasol announced that it will cut natural gas production in June 2026. The cuts come as supply runs out and the company focuses on decarbonisation. In the absence of a gas plan by the government, South Africa will have to rely on imported gas from mid-2026 which is likely to add further pressure on manufacturing firms in the years to come if the government fails to intervene.
South African Reserve Bank Governor Lesetja Kganyago commented last week that there would be no interest-rate cuts until inflation is brought under control. Inflation has been above 4.5%, the midpoint of the central bank’s target range since May 2021 and is only expected to settle there next year.
Finally, the key domestic event for this week is the release of the Q4:23 GDP numbers that are expected to show that South Africa avoided a technical recession. The Bureau for Economic Research (BER) expects a slight quarterly expansion in Q4 with a full year forecast of 0.6% growth for 2023.