South African markets continue to trade with caution on uncertainty around coalition arrangements or a minority government following the general election outcome over the weekend. The ANC failed to get the majority vote for the first time since the dawn of democracy, only getting 40% of the vote, the DA 21.8%, EFF 9.5%, and MK 14.6%.
Real GDP fell 0.1% q/q in South Africa in Q1 24 after rising by a revised 0.3% in Q4 23, highlighting that the country still faces major structural constraints that are impeding growth. The SARB kept the repo rate unchanged at 8.25% at last week’s MPC meeting.
International Market Developments
The U.S. economy grew at a slower pace than expected for the first quarter of 2024. Real GDP increased at an annual rate of 1.3% in Q1 2024, according to the latest estimate, which is lower than the forecasted 1.6% growth and is a slowdown from the Q4 2023 GDP final estimate of 3.4%.
Minneapolis Fed President Neel Kashkari commented that policymakers should take their time in monitoring whether inflation is slowing enough to start cutting interest rates. He further added that the US economy has remained “remarkably resilient”, while the labour market remains strong.
Eurozone CPI overshot expectations coming in at 2.6% y/y in May, from 2.4% y/y in April. Core CPI came in higher than expected in May, at 2.9% y/y, from 2.7% y/y in April. This data is unlikely to deter the European Central Bank (ECB) from beginning its interest rate cutting cycle next week. This data release comes after the ECB’s Chief Economist Philip Lane had commented that the central bank is on track to commence its interest rate cutting cycle in June.
Local Market Developments
South African markets continue to trade with caution following the general election outcome announced over the weekend. The ANC failed to get the majority vote for the first time, receiving 40% of the vote, the DA 21.8%, the EFF 9.5%, and MK 14.6%. The results introduce significant uncertainty with regards future economic policy.
South African equity markets and the rand had performed strongly during May on the back of firmer commodity prices, a lack of loadshedding and markets expecting an election outcome that would result in continuity of the country’s economic and fiscal policies. The market now waits for details of whether market-friendly coalition arrangements can be reached, which would be supportive of a rally in South African assets.
The SARB kept the repo rate unchanged at 8.25%, with the decision being unanimous. Although some uncertainty remains, the SARB expects a modest acceleration in growth over the next few years, together with a gradual stabilisation of inflation at the inflation target. The bank sees inflation falling to the 4.5% objective in Q2:25; this is an improvement from the previous forecast, which only reached this level at the end of 2025. The SARB’s QPM model roughly implies 50bps worth of cuts in both 2024 and 2025.
Real GDP fell 0.1% q/q in South Africa in Q1 24, after rising by a revised 0.3% in Q4 23, as six of the ten sectors contracted, largely driven by an increase in loadshedding in 1Q24 relative to 4Q23.