Last week, US non-farm payrolls (NFP) surprised to the upside in May rising by 172k versus expectations of 88k. Locally, SARB Governor Lesetja Kganyago reaffirmed that the central bank remains firmly committed to returning inflation to its 3% target, despite mounting inflationary pressures arising from the ongoing Iran conflict.
International Market Developments
Last week, US non-farm payrolls (NFP) surprised to the upside in May rising by 172k versus expectations of 88k, slightly below April’s upwardly revised gain of 179k (previously 115k). The stronger-than-expected print suggests tentative signs that the US labour market may be emerging from a prolonged period of soft hiring momentum. Private sector employment increased by 120k, easing from an upwardly revised 177k gain in April. Manufacturing payrolls also improved, rising by 7k after remaining flat in the prior month, indicating some stabilisation in goods-producing sectors. Meanwhile, the unemployment rate was unchanged at 4.3%, reinforcing a broadly steady labour market backdrop despite earlier concerns around cooling employment conditions.
The latest Organisation for Economic Co-operation and Development (OECD) outlook released last week. The outlook paints a more challenging picture for the global economy, with global GDP growth forecast at 2.8% in 2026 before recovering modestly to 3.1% in 2027 as energy market disruptions gradually ease. While the baseline scenario assumes improving supply conditions, the OECD cautioned that a prolonged shock could materially weaken activity and push some economies close to recession. The organisation highlighted rising inflation risks stemming from higher oil and commodity prices, which could slow the disinflation process and complicate the path for monetary policy easing. At the same time, elevated geopolitical uncertainty is expected to weigh on business confidence, investment and employment, creating additional headwinds for global growth. Among advanced economies, growth is projected to remain subdued. The United States is expected to expand by around 2.0% in 2026 before moderating to 1.8% in 2027, while the Eurozone is forecast to record weak growth of approximately 0.8% in 2026, improving only gradually to 1.2% in 2027. Emerging markets are expected to continue outperforming developed economies, although growth is also set to moderate. China’s economy is projected to expand by between 4.3% and 4.5% over 2026-27, constrained by persistent weaknesses in domestic consumption and the property sector.
Looking ahead, US inflation data is due for release on Wednesday.
Local Market Developments
SARB Governor Lesetja Kganyago reaffirmed last week that the central bank remains firmly committed to returning inflation to its 3% target, despite mounting inflationary pressures arising from the ongoing Iran conflict. The Governor stated that there should be “no doubt” about the SARB’s determination to achieve its objective, emphasising that the bank’s credibility is supported by its track record of maintaining price stability. Policymakers acknowledged that additional monetary policy tightening may be required should the conflict persist and continue to fuel inflationary pressures. According to Governor Kganyago, last week’s increase in borrowing costs should help contain rising price pressures and anchor inflation expectations. However, he stressed that future policy decisions would remain data dependent and would be evaluated on a meeting-by-meeting basis. The SARB’s latest forecasts indicate that inflation could rise to 4.9% by the third quarter of 2026, highlighting the challenges facing policymakers.
South Africa’s private sector lost some momentum in May, with the S&P Global SA Manufacturing PMI easing to 49.6 from 51.6 in April, signalling a return to contractionary territory. The deterioration was driven by declines in both output and new orders as businesses faced higher fuel costs, supply chain disruptions and heightened uncertainty stemming from the conflict in the Middle East. Inflationary pressures also intensified, with input costs rising at their fastest pace since mid-2022, prompting many firms to pass these higher costs on to customers.
Looking ahead, South Africa GDP numbers for the first quarter are due for release on Tuesday.