Low but positive GDP growth expected in 2Q

SA likely to maintain growth momentum in 2Q

This week will see the release of SA’s 2Q GDP data, which could signal a fairly resilient economy, despite the country’s ongoing load shedding (albeit at lower stages in 2Q) and multiple global headwinds present. SA’s economy has only just emerged from the pandemic in 1Q23. This recovery was driven by the financial services and personal services industries, along with the transport industry recently. Continued growth in these industries will support growth in 2Q, along with the mining and manufacturing industries, which provided better production growth in 2Q, despite worsening global and local demand.

We, therefore, project growth of 0,3% q/q in 2Q23 from 0,4% in 1Q23. We project low levels of growth of c.0,2% for the whole year and 1,3% over the next two years. Risks to these estimates are marginally to the upside, especially if SA’s energy woes ease and global demand ticks up.

Low levels of growth will hamper the fiscus and maintain a steep yield curve

As we noted in our recent report (see our note, Spread between lower inflation and a fiscal bind dated 28 August 2023), if we would see higher projections for debt to GDP over the MTEF, the yield curve spreads are likely to (bear) steepen. A higher debt-to-GDP ratio would be driven by one or both of the following factors: lower levels of GDP growth and higher gross loan debt as a result of revenue undershoots (which is a function of weak economic growth) and increased spending.

Core market views

  • We believe cash appears attractive relative to the front and back ends of the nominal curve, with selective areas on the belly still providing value.
  • The same goes for inflation-linked bonds (ILBs), although we believe the curve would steepen somewhat and shorter maturities would provide better value in an environment where an external adverse inflation impulse remains likely.
  • In general, we would be better buyers of longer-dated asset swap (ASW) spreads.
  • Our fair value for the USDZAR is within the R16,50–17,00 range. With the rand at 19,00 against the USD, we believe the currency already reflects the “weak China trade”. At levels between 19,00 and 20,00, we are better buyers of the rand.

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