South Africans are now waiting to see what the inflation rate for August will be and as a result if the repo rate will be cut again.
This week was a busy one on the economic front, with gold shining again as a safe haven for investors worried about increasing geopolitical risks. Locally GDP for the second quarter surprised economists, but there was bad news about exports already.
Tracey-Lee Solomon, economist at the Bureau for Economic Research (BER) says it was good domestic news that South Africa’s economy grew faster than expected, with broad-based, but modest growth on the production side.
Expenditure-wise, she points out that quarterly consumer spending reaccelerated, but investment fell further. “A silver lining was the bump in private sector capex, although it remains low in level terms.”
Moving to commodity markets, she says gold reached new record highs as investors increased bets that the US Fed would cut rates next week. “Remarkably, the precious metal stayed above $3600/oz all week.”
Oil prices also climbed after OPEC+ agreed to raise production by less than expected in October after decreasing last Friday because OPEC was expected to announce a larger increase. “These have been surprisingly calm amid increasing geopolitical uncertainty, barely moving as Trump called on European officials to impose new tariffs on India and China as punishment for their purchases of Russian oil.”
Solomon says the US dollar, usually a “safe” asset, was weaker last week and as a result, the rand appreciated by more than 2%, dipping below R17.40/$ on Thursday night. “However, this was not only a weak dollar story as the local currency improved against the euro and pound sterling.”
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Gold and the rand were the darlings this week
Bianca Botes, director at Citadel Global, notes that crude oil prices slid heading in to trade today, with Brent dipping below $66/barrel after extending a near 2% loss in the previous session. “The retreat was driven by signs of weakening demand in the US and evidence of excess supply.”
She also noted the new shine in gold, with bullion prices climbing toward $3,650/ounce this morning, was just shy of record levels and set for a fourth straight weekly gain. “The metal benefited from a combination of expectations for Fed easing and ongoing demand for safe-haven assets.”
Botes points out that the rand strengthened by 2% against the dollar this week, supported by Fed rate cut expectations and buoyant gold prices. “Momentum could carry the currency closer to R17.00/$ if exports hold up and inflation stays contained, although downside risks of softer global demand or renewed dollar strength, remain in play.”
Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, also note that the rand firmed to its strongest level since the first week of November and closed at R17.35 against the dollar on Thursday.
“While much of the rand’s strength was due to the dollar’s continued woes, stronger-than-expected GDP outcomes for the second quarter, as well as higher gold and platinum prices also supported the currency. The rand was trading at R17.38/$ this afternoon.
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GDP surprises economists with a higher than expected increase
According to Statistics SA, real gross domestic product (GDP) expanded by 0.8% in the second quarter compared to unrevised growth of 0.1% in the first. From the production side, eight of the ten industries expanded, with transport and construction the only industries contracting.
The mining, manufacturing and trading industries each contributed 0.2% to overall growth.
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say they maintain their GDP growth forecast at 1.0% for 2025, gradually rising to 1.4% in 2026 and 1.9% in 2027, “supported by low inflation, cumulative interest rate cuts, structural reforms and sectoral resilience, although global trade uncertainty and weak fixed investment remain headwinds.”
Nkonki and Matshego see the GDP recovery gaining traction in the second half of the year. “Households will continue doing the heavy lifting. Subdued inflation and lower interest rates will bolster real incomes, ease debt burdens and support household spending.
“The upside will be capped by slower government spending due to fiscal constraints, uneven fixed investment and a weaker trade balance as global growth softens, commodity prices remain subdued and higher US tariffs and persistent policy uncertainties take their toll.”
They expect GDP to grow by 1.1% in 2025, only moderately faster than the 0.5% in 2024.
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Current account deficit nearly doubles
The latest data from the South African Reserve Bank (Sarb) shows that South Africa’s account deficit widened to 1.1% of GDP, against expectations for a more modest widening to 0.7% from a revised 0.6% in the first quarter.
Nkonki and Matshego expect the current account to remain in deficit as the trade surplus narrows further. “Although exports have shown some resilience, higher US tariffs on South Africa’s exports compared to many of our competitors and subdued growth among key trade partners will weigh on export volumes.
“On the positive side, the robust gold price, the recent rise in platinum prices and marginally improved logistics will help limit the downside. Conversely, imports are likely to increase due to stronger consumer demand given subdued inflation, higher real incomes, lower interest rates and a resilient rand.”
They expect that the non-trade account will remain in a deficit as strong domestic growth boosts corporate profits and dividend payments, thereby driving income payments higher. However, they expect service income to increase as tourism continues to recover.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say elevated precious metal prices, alongside softer oil prices, should provide more support to the terms of trade in the third quarter but export growth may be patchy given the reimposition of the US reciprocal tariff against SA.
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Annual manufacturing output contracts after two months of growth
According to Statistics SA, manufacturing production contracted by 0.7% in July compared to a year ago, a sharper contraction than the market’s expectation of -0.4%. This follows 1.9% growth in June. Only two subsectors recorded production growth.
The food and beverages subsector grew by 1.9% while the glass and other non-metallic mineral products expanded by 3%. The biggest drag came from the metals subsector (-3.3%) and wood subsector (-1.8%).
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano note that year-to-date, manufacturing output is down 1.7% and the PMI signals that July’s weakness may extend into August, posing downside risk to GDP momentum.
Nkonki and Matshego say these results underscore the pressure facing the steel industry, where weak demand and rising costs continue to erode output. “Although improved electricity supply is providing a more stable operating environment, the divergence between mining and manufacturing suggests that structural pressures are still weighing on South Africa’s broader industrial recovery.”
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Mining production accelerates
Mining output expanded by 4.4% in July compared to a year ago, exceeding consensus expectations of 3.4%, Statistics SA says. The most significant contributors were platinum group metals (6.2%), iron ore (12.2%) and other metallic minerals (45.8%). On a seasonally adjusted basis, production increased by 1% in July, the fifth month of growth.
Nkonki and Matshego note that the rebound highlights firmer demand conditions, both globally and domestically, as well as fewer operational disruptions.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say year-to-date output is down 1.9%, reflecting earlier weakness in platinum group metals, gold and coal, suggesting full-year output could still contract by close to 1%, despite recent momentum.
