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Ok. Got itAlthough local GDP growth for the fourth quarter in 2020 exceeded expectations, the slow vaccine rollout and load-shedding are affecting economic recovery.
The South African economy grew by 1,5% (qoq, not annualised) in the fourth quarter of 2020, exceeding market expectations. The ongoing recovery of manufacturing and trade supported on the production side, while the move to lower levels of restriction led to higher household expenditure on restaurants and other recreational activities. This confirms an economic contraction of -7,0% for 2020, compared with 2019, the biggest annual contraction since 1920. This does not capture the overall cost of the Covid-19 crisis but highlights the economic devastation of the pandemic and related restrictions. The local recovery thus far has been fragile, with setbacks of load-shedding and a slow rollout of vaccinations doing little to boost confidence. It was therefore disappointing that the spectrum auction was once again delayed, following a ruling by the Pretoria High Court on the case brought by Telkom. Encouragingly, however, the announcement of the eight preferred bidders for the procurement of emergency power (2 000 MW) and opening of bid window five of the Renewable Energy Independent Power Producer Procurement Programme can be seen as progress on the road to energy security, even though it will not fully mitigate challenges in the near term.
The South African Reserve Bank (SARB) voted to keep interest rates unchanged at its March MPC meeting – a unanimous decision by the committee. This compares to a 3:2 vote at the previous meeting with two members in favour of a cut.
This arguably signals that the next move could be an increase, but SARB took some time to highlight that policy would remain accommodative and that more evidence would be required before acting. Money markets had been pricing in multiple 25 bp hikes before year-end. The rand and local markets played defence against the headwinds of volatile and rising global bond yields. The All Bond Index declined by 2,5% in March, bringing the first quarter returns to -1,7%. Although the February inflation print came in below expectations, rising oil prices, food inflation and base effect will see inflation tick higher in the coming months. Inflation-linked bonds also suffered from the global bond rout, but this was offset by the anticipated uptick in inflation, bringing returns to 0,6%.
The FTSE/JSE All Share Index gained 1,6%, bringing the first quarter return to a pleasing 13,1%. Strong quarterly performance from the resources sector (18,7%) continued to set the tone, but small-cap stocks also delivered credible results with the small-cap index up 21,2% relative to headline numbers from the mid-cap stocks (9,4%) and the top 40 (13,2%). The property sector gained 1,2% in March, bringing the quarterly returns to a healthy 6,4%. A year on, risk assets have all but left the pandemic behind.