Despite being greeted by a return to electricity rationing, January has witnessed a number of positive trends in key economic data sets, most notably in the area of receding inflation.
Motorists have been enjoying the benefits of some savings in the New Year, with successive declines in petrol and diesel prices. Since the end of 2023, lower fuel prices have been on the cards, mainly due to a fortuitous combination of lower oil prices and a stronger rand/US dollar exchange rate.
Oil prices remain under pressure, due to uncertainty over demand and clear signs of more than adequate supplies, especially from non-Opec producers. Over the past three months, the price of Brent crude oil has dropped by more than 14%, whilst South Africa’s currency outperformed all of its emerging market peers during the month of December, strengthening by 3% against the US dollar.
With the yield on South Africa’s 10-year bonds having dropped by 120 basis points over the past three months, pressure is mounting on the Reserve Bank to start lowering its benchmark repo rate, which remains at its highest level in 14 years, despite the consumer price index having dropped to comfortably within the Reserve Bank’s target range for inflation. Lower interest rates during 2024 are now inevitable, and, with a bit of luck, lower fuel prices and a firmer rand exchange rate could make this happen during the first quarter of the year.
Trade surplus rises further
Other quantifiable good news relates to signs of a new upward price trend for commodities that are crucial to the country’s economy and ability to generate foreign exchange. Over the past two years, prices for several of the country’s key export commodities had been volatile and under pressure, resulting in October 2022 recording the first trade deficit in 30 months.
Fortunately, total exports have managed to continue an upward trend, confirming the absence of any significant balance of payments instability.
Of late, the chances of maintaining solid export growth in 2024 have improved considerably, with the prices of coal, iron ore and platinum having increased by between 60% and 120% from their pre-Covid levels (in March 2020). The gold price also recently hit an all-time high of above $2,000 per fine ounce.
Absa PMI ticks up again
The Absa Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research at Stellenbosch University, ended 2023 on a stronger footing, returning to above the neutral 50 index point level. Business activity seems to have been buoyed by a combination of festive season shopping and several weeks without load-shedding. It is particularly encouraging that respondents to the PMI survey were notably more optimistic about business conditions over the longer term, with this sub-index rising to its highest level in eleven months.
With strong growth in new job creation during 2023 and key macroeconomic indicators pointing in the right direction, it may just be possible for National Treasury to present a budget in February that opens the taps for significant spending on fixing the country’s infrastructure. Hopefully, such a scenario will unfold with the maximum possible involvement of the private sector.