• Executive Summary
    • The economic outlook has improved. President Ramaphosa has moved fast to address the country’s most pressing concerns, tackling corruption head on and promising to restore good governance and fiscal discipline throughout the public sector. The National Budget gave content to most of the President’s promises, setting the country on a faster, albeit tougher, path towards fiscal consolidation, which appears realistic and achievable. So far the comments of most major rating agencies have been positive. We therefore expect Moody’s to leave SA’s rand-denominated debt rating unchanged at investment grade in March 2018. We have altered our forecasts to reflect the positive turn in domestic conditions. We now forecast a stronger rand and a milder upturn in inflation, which will probably result in slightly lower interest rates within the next month. Consequently, we anticipate moderately faster growth in consumer spending and a more pronounced recovery in fixed investment. These adjustments push our GDP growth forecast up to 1.6% in 2018 (previously 1.4%), 1.8% in 2019 (previously 1.7%), and 2.4% in 2020 (previously 2.1%). National Treasury’s growth forecasts are slightly more conservative at 1.5% in 2018, 1.8% in 2019 and 2.1% in 2020.
    • Since the SARB MPC meeting in January, the FRA curve has flattened further. This indicates that the market, in general, is expecting even more monetary policy easing now compared to a month earlier. While the SARB toned down its hawkishness in January, they were by no means dovish enough to signal immediate interest rate cuts. However we continue to believe that gradual monetary policy easing will feature in 2018 as a result of recent developments.
    • The rand rallied further, supported by the dramatic changes in SA’s political leadership, on-going action against corruption, and a much sounder national budget (which the markets believed should convince Moody’s rating agency to maintain SA’s investment grade risk rating and thereby ensure the country’s place in Citi’s World Government Bond Index). Positive emerging market risk appetites and a much weaker US dollar also supported the rand.