Global financial markets continue to battle with the impact of tariffs, while locally, Finance Minister Enoch Godongwana finally delivered the long-awaited budget 3.0.
International Market Developments
The Fed commented that they must ensure that any price increases resulting from policy changes don’t lead to a persistent rise in inflation. They further noted that, given the ongoing level of uncertainty, they felt it is appropriate to wait and see how trade policies evolve over time to gauge their impact. The vice chair reiterated that monetary policy is in a good place and that policy is well positioned to respond to any changes in the economic outlook. The Fed will likely continue with the process of collecting data to get a clearer picture to assess the impact of tariffs. They highlighted that uncertainty was hindering not only policymakers, but also firms and households, who are challenged in terms of assessing how tariffs and other policies from the Trump administration will affect the US economy.
Local Market Developments
President Cyril Ramaphosa held talks with US President Trump in a bid to ease tensions between the two nations, which have been elevated following claims by the US administration of violence orchestrated against White farmers in South Africa. President Ramaphosa disputed the claims and sought to provide reassurance. Later in the week, Finance Minister Enoch Godongwana said the government made progress on resetting its relationship with the US and securing a trade deal in talks that took place after President Cyril Ramaphosa’s meeting with Donald Trump at the White House.
The Finance Minister also finally delivered budget 3.0 in parliament. South Africa’s third budget won support by easing political risk. The budget cuts spending, forecasts slower growth, and sees debt peaking at a slightly higher level, with the education, health, and home affairs departments bearing the brunt of the cuts. The budget has been endorsed by the Democratic Alliance and the GNU has agreed on key issues, virtually guaranteeing its success. The budget has been welcomed by markets, with economists praising the Treasury’s commitment to fiscal consolidation.
South Africa’s annual inflation inched up in April but remained below the lower bound of the central bank’s 3%-6% target with April CPI printing 2.8% y/y (vs. 2.7% expected) and Core CPI at 3.0%.