Weekly economic wrap: Rand stable around Budget 3.0 and US visit

It was a busy week for South Africa on the economic front, with the finance minister at last delivering a budget that all parties in the government of national unity are happy with, followed shortly after by President Cyril Ramaphosa’s visit to President Donald Trump at the White House. Through all this, the rand kept its composure and remained stable.

Lisette Ijssel de Schepper, chief economist at the Bureau for Economic Research (BER), says it is rare that the presentation of the national budget would not be the week’s main story. “This week, the focus was on the meeting between Ramaphosa and Trump. It was a high-stakes meeting because so many things could have gone wrong.

“It is, of course, remarkable that the White House blasting ‘Kill the Boer’ footage with all members of the US and SA delegations present is not the worst thing that could have happened. But the meeting ended on cordial terms, and the South African delegation sounded positive after the closed-door session following the media event.”

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Budget 3.0’s sobering reality check

She says Budget 3.0 was a sobering reality check on South Africa’s macro and fiscal position, as National Treasury’s growth and revenue outlook were revised down in line with the deterioration in global and domestic economic conditions.

“Treasury was forced to slash the massive shopping list it presented in February into something far more manageable. Net new expenditure for 2025/2026 has been halved from R142 billion in March to R74.4 billion.

“In addition, Treasury warned that it will impose R20 billion in additional tax measures in 2026 unless it is able to achieve the requisite savings through the expenditure review process and/or Sars is able to turn its R2 billion additional allocation for 2025/2026 into R20 billion of additional revenue by February next year.”

De Schepper says that to add to the fiscal risks, Transport Minister Barbara Creecy approved a R51 billion guarantee facility for Transnet to support capital investment, implement required reforms, and ensure that it can meet its debt obligations. This comes on top of the R47 billion support facility granted to Transnet at the end of 2023.

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Rand stays stable in all the noise around US visit and Budget 3.0

De Schepper points out that the rand exchange rate remained remarkably strong throughout the week, although it was against a weak US dollar and was still trading below R18/$ today.

Bianca Botes, director at Citadel Global, also noted the rand’s steady hand on the same day as the diplomatic fireworks and Budget 3.0. “Despite the significance of both the budget and the US meeting, the rand remained remarkably stable. Investors appeared reassured by government’s commitment to fiscal discipline and largely ignored the diplomatic drama taking place in Washington, DC. The buckling greenback, of course, also provided the rand with a supportive hand.

“The rand held firm near a five-month high against the dollar, benefitting from a depressed greenback as markets reacted positively to the prospect of new trade talks with the US and ongoing speculation about changes to South Africa’s inflation-targeting regime, despite a weaker economic growth outlook and slightly higher inflation. The rand has also strengthened against the euro and the pound.”

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Gold gained, while oil jumped

Botes points out that gold prices hovered near $3 300 per ounce, recovering from earlier losses and are set for a weekly gain. “Investors are turning to gold yet again as a safe haven asset amid worries about US fiscal policy, especially after a major tax-and-spending bill was passed and Moody’s downgraded the US credit rating.

“Gold is an attractive asset for investors because it is a good diversifier of portfolios as it protects against inflation and its value is resilient during volatile and uncertain economic times. A weaker US dollar has further supported gold, making it more attractive to buyers worldwide. Ongoing geopolitical tensions have added to gold’s appeal as a refuge in uncertain times.”

She says Brent Crude oil prices dropped toward $64/barrel, heading for their first weekly decline in three weeks, mainly due to expectations that the expanded Organisation of the Petroleum Exporting Countries, OPEC+, which is a coalition of major oil-producing nations, might approve another increase in oil production at their upcoming meeting.

“Geopolitical risks are also influencing energy markets. Reports suggest Israel is preparing for possible strikes on Iranian nuclear facilities if US-Iran nuclear talks fail, raising fears of regional supply disruptions. However, these concerns have so far been outweighed by the prospect of increased oil supply and rising stockpiles.”

De Schepper says the oil price jumped a bit midweek on reports that Israel was preparing to strike Iran’s nuclear facilities. “However, reports that OPEC+ could announce another sizeable increase in oil output following their meeting on 1 June pushed futures lower.

“A slightly lower oil price and a relatively stronger rand mean that local motorists should be somewhat shielded from Budget 3.0’s fuel levy increase that will kick in next month.”

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Inflation edged up slightly in April due to higher food prices

Headline consumer price inflation increased marginally to 2.8% in April from 2.7% in March. Tshepiso Maroga, economist at the BER, says after a string of downward surprises, this was the first overshoot relative to the consensus forecast, but in line with the BER’s forecast.

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the slight increase in inflation exceeded their and the market’s expectations. “This increase was primarily driven by higher food prices, which continued their upward trend from a low base, along with contributions from housing and utilities. These factors overshadowed steeper declines in fuel prices.”

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say although core inflation remains benign, they still foresee muted inflation over the remainder of the year.

“Despite a rising trend into the second half of 2025, inflation should remain below the target midpoint, supported by soft oil prices, a recovery in the rand’s value and weak economic activity. Headline inflation should average around 3.5% this year, down from 4.4% last year.”

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Retail sales slowed again in March

Consumer spending slowed sharply in the first quarter of 2025, with retail sales increasing by only 1.5% in March, down from 4.1% in February (revised up from 3.9%). On a monthly basis, sales volumes dipped by 0.2% in March, following a steeper 1.2% drop in February. Overall, retail activity grew just 0.1% in the first quarter compared to the fourth quarter of 2024, a significant slowdown from the 2.0% growth in the final quarter of 2024.

Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say this suggests that household spending is losing momentum, which could weigh on broader economic growth. “Despite the March slowdown, retail sales for the first quarter were up 4.1% compared to a year ago, the strongest start to a year since 2018.

“This reflects improved household finances, supported by lower inflation and reduced borrowing costs. However, the sharp deceleration in March points to growing consumer caution, likely due to fading support from once-off large-scale two-pot pension withdrawals, as well as rising uncertainty both at home and abroad.

“Looking ahead, consumer spending is still expected to drive growth in 2025, but at a slower pace than previously forecast. The outlook is clouded by global trade tensions, local political uncertainty and weaker local growth, which may weigh on employment.”

Matshego and Nkonki point out that the key drivers of the March increase were pharmaceuticals and medical goods, cosmetics and toiletries and textiles, clothing, footwear and leather goods. “Looking ahead, retail sales are expected to strengthen in the coming quarters.

“This improvement will be supported by rising real incomes, subdued inflation, continued withdrawals of contractual savings and lower debt servicing costs compared to a year ago.”