Read about South Africa's Q4 GDP, credit rating outlook, inflation figures, monetary policy decisions, and bond and equity market performance in March 2023.
The much-anticipated cabinet reshuffle confirmed Dr Ramokgopa as the new minister of electricity but delivered few other surprises. Public sector wage negotiations concluded with a two-year deal, with an effective increase of 7,5% this year. Fourth quarter GDP printed at -1,3% – a much lower figure than anticipated. This brings economic growth for 2022 to 2,0% but also reaffirms the poor momentum going into 2023. Credit ratings agency, S&P, downgraded the outlook for the sovereign’s credit rating to stable from positive, raising concerns about the impact of the energy crisis and the state of network industries on economic growth.
Headline inflation for the year to February 2023 increased to 7,0% from 6,9% the previous month, with core inflation increasing to 5,2%. Both figures were higher than market expectations and reflected continued upward pressure in food prices, while annual medical aid tariff increases led to higher core inflation. However, producer inflation continued to trend lower, surprising to the downside but relative to expectations. The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) lifted the bank’s key lending rate by 50 basis points (0,50%) to 7,75%. Three members of the Monetary Policy Committee (MPC) voted in favour of a 50bps increase and two members voted in favour of 25bps. SARB downgraded forecasts for economic growth further for 2023, given elevated levels of load-shedding with marginally higher figures over the medium term. Forecasts for headline inflation were adjusted higher, for 2023, with expectations for a moderation in headline inflation sustainably back to the 4,5% midpoint by the end of 2025. Risks to the inflation outlook are still assessed to be to the upside and will continue to be a key driver for the progression of the interest rate hiking cycle.
The FTSE/JSE All Bond index gained 1,3% in March and 3,4% over the quarter, despite being faced with a myriad of headwinds, including the country being greylisted, and the turmoil surrounding the US and European banks. The rand appreciated by c.3,1% against the US dollar in March, supported by hawkish tones from SARB and a weaker US Dollar. Despite the reprieve in March, the rand still had a negative start to the year, depreciating by 4,6% in the first quarter of 2023.
Domestic equity markets declined over the month as the local energy crisis weighed on domestically orientated mid and small-cap counters. Global market volatility spilt over into local stock performance, with banks trading down to 6,8% over the month, while gold miners rallied. The FTSE/JSE All Share lost 1,3% in March but still managed to deliver positive returns of 5,2% over the quarter, supported by a strong performance from the Industrial sector and index bellwethers, Naspers and Prosus. The market received Tencent results positively, supporting further gains for Naspers and Prosus in March. The pair gained 16,6% and 17,9% respectively over the quarter, largely driven by gains in the January rally as China lifted Covid lockdown restrictions. The property sector lost further ground, recording -3,4% for the month, bringing the returns over the quarter to -5,1%.
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