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  • Writer's pictureDr Roelof Botha

On Balance - Economic Update March

The downside

No sooner had the updated Integrated Resource Plan (IRP) been published for public comment than it became clear that the Department of Mineral Resources & Energy had largely ignored Pres. Cyril Ramaphosa promised closer cooperation between the public and private sectors. The latter is regarded as a prerequisite for fixing the mess that the country’s infrastructure finds itself in, due mainly to a toxic combination of state capture, corruption and incompetence at all levels of government. Energy sector experts have been blunt in their fierce criticism of the IRP, mainly due to a lack of transparency on key assumptions and the inexplicable annual limit of only 900 MW on new solar power installations. In contrast, South Africa added 2.5 GW of rooftop solar in 2023 alone. The Minister of Electricity has indicated that he may be out of a job soon due to progress in reducing the shortfall in electricity supply. With a bit of luck, this crucial policy document will be sent back to the drawing board.

The upside

S&P PMI for South Africa recovers

In February, South Africa’s Purchasing Managers’ Index (PMI), compiled by S&P Global, rose above the neutral level of 50 for the first time in six months, boosted mainly by increased business activity. The S&P Global PMI is a composite gauge designed to give a single-figure snapshot of operating conditions in the private sector. It covers all the services sectors, agriculture, mining, and manufacturing.

S&P PMI for South Africa

Evidence from the monthly S&P survey confirms the positive impact of lower input prices. South Africa’s producer price index dropped further during February and remains well within the SA Reserve Bank’s target range for inflation. Several companies participating in the survey reported an uptick in customer numbers and a recovery of domestic demand. Companies were more committed to increasing their employment levels and boosting their inputs than during the previous six months.

Food price index declines

Although the consumer price index (CPI) increased marginally from 5.3% in January to 5.6% in February, it is still within the Reserve Bank’s target range for inflation. It is way below the 7% recorded in February last year.

Food price index declines

Other excellent news that can be gleaned from analysing the CPI data over the past 18 months is the consistent decline in the price levels for food (including non-alcoholic beverages) and alcoholic beverages. In combination, these two groups comprise more than 21% of the weighting of the CPI basket, and any further downward movement will almost certainly serve to pull back the overall CPI again.

Further moderation of inflationary trends should continue in 2024, which will be good news for indebted consumers and eventually lead to lower interest rates.

Gold price surges to new record

March witnessed a relentless rise in the gold price, with the precious metal breaking new records regularly to reach an all-time high of $2,265 per fine ounce before pulling back slightly. The futures market price quoted at the beginning of April by was even higher, namely $2,280 per fine ounce (for delivery in June 2024).

Traditionally, an inverse relationship exists between US interest rates and the gold price, which is at play again, with the yield on 10-year US government bonds having dropped by 67 basis points since mid-October last year. Another reason for the surge in the gold price is heightened geopolitical tensions and indications that the wars in Ukraine and the Middle East may be prolonged beyond 2024.

A third reason is the sharp increase in global central bank purchases of gold, as these institutions start diversifying away from forex assets. In these circumstances, and with an easing of monetary policy in the US firmly on the cards, gold’s haven status is starting to pay dividends, boosting mining sector profits in South Africa.


Dr Roelof Botha

On Balance by Dr Roelof Botha deliberately emphasises positive news that, more often than not, confirms the resilience of the South African economy and the immense scope for new business opportunities.



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