Last week, S&P maintained SA’s credit rating, with a positive outlook despite rising unemployment. In the US, April CPI was softer at 2.3% y/y, but tariffs raised inflation concerns among Fed officials. Today, the focus shifts to President Ramaphosa’s meeting with President Trump, as he aims to ease SA-US tensions, and to Finance Minister Enoch Godongwana, as he tables a third version of the Budget in parliament.
International Market Developments
In the U.S., April’s CPI recorded a softer-than-anticipated 0.2% month-on-month and 2.3% year-on-year increase (down from 2.4%). Core CPI held steady at 2.8% year-on-year. However, inflationary pressures are expected to intensify due to ongoing tariff policies. Federal Reserve Presidents have underscored the importance of monitoring inflation expectations amid trade policy uncertainties. Atlanta Fed President Raphael Bostic anticipates a single interest rate cut in 2025, citing rising consumer inflation expectations and trade policy risks. He projects U.S. GDP growth of 0.5%–1.0%, avoiding a recession, but advises cautious policy adjustments. St. Louis Fed President Alberto Musalem notes that tariffs could negatively impact the economy and labour market, though monetary policy remains well-positioned to respond.
On May 16, 2025, Moody’s downgraded the U.S. credit rating to Aa1 from Aaa, citing concerns over escalating federal debt and interest payments. This follows Fitch Ratings’ downgrade to AA+ in 2023 and Standard & Poor’s in 2011. Moody’s projects federal debt to reach 134% of GDP by 2035, up from 98% in 2024, with the federal deficit expanding to 9% of GDP by 2035 from 6.4% in 2024, driven by higher interest costs, entitlement spending, and reduced tax revenue.
Local Market Developments
President Ramaphosa’s scheduled meeting with President Trump will address bilateral tensions between the two nations. The talks are likely to cover discussions covering trade tariffs, Starlink regulations, and geopolitical matters, including South Africa’s International Court of Justice case against Israel and its BEE and Land redistribution policies.
Finance Minister Enoch Godongwana will present the revised Budget in parliament today. Key priorities include stabilising the debt-to-GDP ratio in FY25/26 while maintaining current bond issuance levels. The reversal of proposed VAT increases (0.5 percentage points in 2025 and 2026) amid a weaker macroeconomic environment will complicate fiscal consolidation efforts. The focus will be on the adjustments that will be made to the spending commitments from earlier 2025 budget proposals, with tax increases unlikely.
S&P Global Ratings reaffirmed South Africa’s credit ratings with a positive outlook, citing potential for stronger-than-expected economic growth despite trade and tariff challenges. The positive outlook reflects confidence in debt consolidation efforts, economic reforms under the coalition government, and progress in addressing infrastructure constraints.
The April CPI is due for release today and is expected to come in broadly in line with the previous print at 2.7% y/y. Core CPI is expected at 3.1% y/y in April, also unchanged from March.