Economic Update July 2025
- Dr Roelof Botha
- Aug 8
- 3 min read
The downside
Several high-profile executives in the public sector have recently been suspended or placed on cautionary leave, whilst lifestyle audits have been ordered for many of the employees of the Independent Development Trust. Combined with the absence of sufficient protection for whistleblowers, these events serve as a stark reminder that mismanagement and corruption in the public sector at large did not end with the Zondo Commission Report. Much more needs to be done by the government to convince the country’s citizens of its bona fides in tackling the scourge of graft within all avenues of state activity and to expedite the prosecution of people where prima facie evidence points to possible complicity in corruption.
Other depressing news was the unsuccessful attempt by the Department of Trade, Industry and Competition to secure a trade deal with the US, to avert a 30% tariff on goods exported to the world’s largest market. Perhaps a case of punishment for flirting with countries that are guilty of gross human rights violations, as well as vehement animosity towards the US, especially Russia, China and Iran. The US remains the bastion of free enterprise democracy, and any attempt to oppose these principles is destined to create serious problems, as has been the case with the BRICS group of countries. Towards the end of July, South Africa’s currency was also punished, but at least this is good news for most exporters.
The upside
Prime lending rate drops to 10.5%
During the last week of July, the Monetary Policy Committee (MPC) of the Reserve Bank cut the repo rate by another 25 basis points – the fifth cut since the modest easing of restrictive monetary policy that commenced in September last year. With the consumer price index at 3% (at the bottom point of the inflation target range) and the producer price index remaining at record low levels (0.6% in July), the decision by the MPC was not surprising.
Unfortunately, a hawkish policy approach had been in place for the better part of three years, despite the absence of any sign of demand inflation. Since the unduly restrictive monetary policy started to hamper growth in demand, South Africa’s GDP growth rate has remained below one per cent. The latest rate cut has been welcomed by all and sundry, and it relieves the debt servicing burden of millions of households. The official bank rate is now 7%, with the prime overdraft rate at 10.5%, which is still 50 basis points higher than pre-pandemic.
South Africa’s residential property market is bound to gain some traction as a result of the lower interest rate. However, some real estate firms canvassed by Property24 have noted that more rate cuts would be required to lift the sector to the activity levels achieved in 2022. The latest rate cut is a welcome step towards reinvigorating economic activity and restoring consumer confidence.
Manufacturing PMI starts to expand
The seasonally adjusted Absa Purchasing Managers’ Index (PMI) for manufacturing moved into expansionary territory in July, after spending ten successive quarters below the neutral mark of 50 (a reading above 50 indicates increased activity and below 50 equates to decreased activity). For most of the past three years, the index trend was inversely correlated to the rise in the prime overdraft rate to its highest level in 15 years, and the latest move suggests a positive response to the modest easing of restrictive monetary policy.
The welcome increase in the PMI to 50.8 in July 2025 was mainly due to a recovery in demand, with new sales orders rising by 9.7 points to 55.9. Although July witnessed a modest decline of the sub-index tracking expected business conditions in six months, it is encouraging that the latest level of 56.4 remains in anticipated expansionary territory.
SA tops MSCI Property Index
South Africa’s commercial property market has outperformed the other 23 countries included in the annual MSCI/Absa Global Property Index, achieving a total return of 11.9% for the 12 months ending December 2024. The index posted a third consecutive year of capital growth and its best total returns since 2015. The sustained recovery of commercial property in South Africa reflects strengthening property fundamentals, diminishing political uncertainty following the formation of the Government of National Unity (GNU), the easing of loadshedding, and the onset of an interest rate-cutting cycle.
On Balance by Dr Roelof Botha deliberately emphasises positive news, which often emphasises the resilience of the South African economy and the immense scope for new business opportunities.
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