Weekly economic wrap: Rand stabilises while gold loses shine

It was a quiet week on the domestic economic front, with two public holidays and few data releases showing the South African economy’s performance. The good news is that the rand was more stable this week, although gold lost a tiny bit of its shine after its record-highs of the previous week.

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the rand is benefiting from improved risk aversion as fears about the US-China trade war ease. China’s commerce ministry was quoted as saying that trade talks with the US are imminent after the Trump administration expressed its readiness to start negotiations on tariffs.

In South Africa, Finance Minister Enoch Godongwana announced that a revised budget for the current financial year and estimates for the Medium-Term Framework for the current and the next financial year will be tabled on 21 May.

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Scrapping of VAT increase helped the rand

Matshego and Nkonki say the announcement about scrapping the VAT rate increase to 15.5% from 15% has somewhat eased fears about the stability of the government of national unity (GNU), which helped the rand. The rand traded at R18.36/$ on Friday afternoon, firming from R18.59 on 30 April to its strongest level since 1 April.

In the local equity market, the JSE Alsi is marginally higher despite a slump in basic materials, which was dragged lower primarily by the softer gold price. Gold was trading around 3,255.76 on Friday afternoon, its lowest level since 15 April, as global risk aversion eased. Platinum-group metal prices rebounded further, albeit marginally, the Nedbank economists noted.

Brent crude oil fell to $62.21 a barrel, its lowest level since April 2021, after reports suggested that OPEC+ will announce further output expansion effective June.

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Credit growth slowed in March

Growth in private sector credit extension slowed further in March to 3.5% from 3.7% in February. Matshego and Nkonki say the moderation can be attributed to the bills and investments category, which contracted by 6.3%.

Growth in loans and advances, which excludes bills and investments, increased to 4.3% from 3.9%, with credit in both the household and corporate sectors increasing. Household loans improved marginally to 2.9% from 2.7%, while growth in home loans was up slightly (2.3% from 2.1%) and overdrafts and personal loans continued to contract but at a softer pace.

Instalment sales and leasing finance maintained its growth rate of 6.2%, while credit card usage eased to its lowest rate since January 2022, when it grew by 7.6%. Corporate credit growth increased to 5.6% from 5.1%, supported by a notable increment in overdrafts.

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Lower inflation and improved growth should bolster consumer confidence

Overdrafts jumped to 10.3% from 4.9% in February, while commercial mortgages, instalment sales and leasing finance also edged higher. However, credit card usage by companies dropped noticeably to 2.5% from 11.1% and general loans slowed by a smaller margin, easing to 4.3% from 4.8%.

Matshego and Nkonki say on the household front, lower inflation and improved growth and employment outlook should bolster consumer confidence, allow lenders to ease credit standards and therefore encourage growth in the coming months.

“For corporates, credit growth is set to remain modest amid spare capacity and heightened levels of uncertainty. However, conditions will likely recover more meaningfully later in the year as better growth outcomes boost confidence and bolster private-sector investment.”

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Trade balance: Exports expanding faster than imports

According to Sars, the trade balance widened to a surplus of R24.8 billion in March from R20 billion in February, with exports leading the charge, increasing by 5.7% compared to February, although slower than the 9.8% in February, but still expanding faster than imports.

The main positive contributors were machinery and electronics, which increased by 21%. Matshego and Nkonki say this suggests higher shipments to the US ahead of the Trump administration’s reciprocal tariffs.

Mineral products also added to the upside, up by 18%, while the unclassified goods subcategory made a surprising contribution, increasing by 467%. While a substantial increase, Matshego and Nkonki say the contribution to the headline figure is negligible, given that the category accounts for much less than 1% of the country’s exports.

The main export destinations during the month were China (10.2%), Germany (7.7%), the US (5.7%), Mozambique (5.6%) and India (5.3%).

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Rebound in imports, but global trade tensions loom

Imports rebounded by 3.2% in March after a 13.5% contraction in February. The recovery was driven by a 156% increase in animal and vegetable fats, with further support emanating from purchases of vehicles and transport equipment (28%), original equipment components (9%) and mineral products (7%).

The main import destinations for the month were China (18.8%), India (7.9%), the US (7.2%), Germany (6.6%) and Thailand (3.7%). Over the year, exports recovered by 6.3% from 1.2%.

In contrast, imports remained in contractionary territory for a second consecutive month. Matshego and Nkonki point out that the trade outlook has become increasingly uncertain due to ongoing global trade tensions.

“Imports may continue to increase as lower inflation and higher real incomes bolster import demand. The expected ongoing recovery in fixed investment will also provide an additional boost.”

They note that the Trump administration delayed the tariffs imposed on most countries in late March for 90 days, providing some short-term relief for the US’s trade partners, except China.

However, Matshego and Nkonki say, South African exports will likely weaken this year given the gloomier global growth prospects, particularly from the country’s key trade partners. “The IMF expects global growth to moderate to 2.8% in 2025, down notably from the 3.3% estimated in the January World Economic Outlook Update.”