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On the local data front, consumer sentiment declined sharply in Q1, weighed down by concerns over potential tax hikes and the return of load-shedding. However, there were some positive developments: the composite leading business cycle indicator rose in January 2025, and PPI inflation continued its downward trend in February.
Internationally, attention centred on a broad set of PMI releases. March saw improvements in PMIs across the US, UK, and eurozone (EZ), with Germany’s manufacturing sector showing notable gains. The stronger data helped boost overall business sentiment. Meanwhile, the US economy continued to show steady momentum.
Back to some encouraging domestic news. South Africa has taken a significant step in inviting private-sector participation to help restore our ailing freight rail and port infrastructure, which continues to hamper exports. The Department of Transport has formally launched a process to engage private companies in the operation and enhancement of the country’s underperforming rail and port systems. This week, Transport Minister Barbara Creecy introduced an online Request for Information (RFI) platform aimed at attracting private investment and operational expertise, while retaining state ownership of key infrastructure assets. The initial focus areas include: the Northern Cape to Saldanha and Nelson Mandela Bay corridors for iron ore and manganese exports, the Limpopo and Mpumalanga to Richards Bay corridor for coal and chrome exports, intermodal supply chains for the container and automotive sectors.
Now, for the less encouraging news, especially if you're a Transnet funder. Transnet has signed a three-year wage agreement with the SA Transport and Allied Workers Union (Satawu) that meets the union’s demand for above-inflation increases totalling 17.5% over three years. The deal was concluded during negotiations held on Wednesday, following a 10-day cooling-off period after Satawu and the United National Transport Union (Untu) initially rejected a lower offer. Transnet, which reported a R2.2 billion loss for the six months to September, confirmed in a statement early Thursday morning that the final agreement includes salary increases of 6% in the first and second years and 5.5% in the third year, well above the current inflation levels of around 3%. The agreement takes effect from 1 April 2025.
Untu has not accepted this offer and revised its original wage demand from 12% for 2025 to 10%. The union is pushing for a one-year deal that includes a R2,500 housing allowance, a R2,500 medical aid subsidy, and the removal of overtime caps, among other demands. Untu has said it is prepared to mobilise its 25,000 members.
It was another eventful week in the US. Senior officials in the Trump administration reportedly used the encrypted messaging app Signal to discuss military plans and mistakenly added a journalist to the chat. Plans included operational details about planned strikes on Yemen’s Iran-aligned Houthi forces. The error was reportedly made by National Security Adviser Mike Waltz, who added Jeffrey Goldberg to the group, which included Vice President J.D. Vance and Secretary of State Marco Rubio. While the administration maintains that no classified material was shared, the discussion nonetheless revealed potentially valuable strategic insights. Beyond the military disclosures, the chat also included belittling remarks about European allies proving the recent disparagement of European allies is not just for show but a reflection of the US administration’s true feelings.
In other news, US President Donald Trump has announced a new wave of tariffs, the most consequential being a 25% levy on all imported motor vehicles and parts. While the tariffs had been widely signalled, the speed of implementation has caught many off guard. According to the White House, the new tariffs will take effect on April 3 for vehicles and May 3 for auto parts. Imported vehicles accounted for nearly half of all car sales in the US last year, and the announcement has sparked immediate concern across the global automotive industry. Suppliers have warned of imminent price increases, while dealers have raised alarms over potential job losses. Europe’s auto sector swiftly called for a transatlantic agreement to prevent the tariffs from being enforced.
In Germany, BLG Group (a key logistics provider at Bremerhaven, one of the world’s busiest auto ports) said it is preparing for a 15% decline in traffic. In Spain, the EU’s second-largest vehicle manufacturer, dealer association Faconauto, warned that reduced demand for Spanish cars and parts could threaten jobs and future investment. French car parts manufacturer Valeo said it would be forced to raise prices in the US, while BMW, a major exporter of US-made cars to Europe, stated that a trade conflict between the two regions would not offer any benefits.
Investor anxiety was also swift. On Thursday alone, Volkswagen, BMW, Mercedes-Benz, Porsche, and Continental lost a combined $5.93 billion in market value, reflecting market fears over rising costs and reduced sales.
Elsewhere, global equity markets were mixed. The US S&P 500 rose 0.5% over the week, though Thursday saw a decline in line with European markets. In the UK, the FTSE 100 slipped 0.4% week-on-week (w-o-w). Locally, SA’s All Share Index (ALSI) gained 0.4% for the week, with financial stocks performing particularly well.
However, the rand weakened by 0.6%, primarily due to broad U.S. dollar strength – the greenback appreciated 0.5% against the euro. The rand also slipped 0.1% against the euro and 0.5% against the pound sterling. In addition, mounting global and domestic (see Budget) uncertainty pushed the local 10-year bond yield 11 bps higher. SA’s elevated risk perception was further reflected in persistently high credit default swap (CDS) spreads.
Some commodities benefitted from the heightened geopolitical tension. Gold surged to a record high on Thursday as investors sought safety. Brent crude oil also gained, rising 2.6% for the week, supported by U.S. tariff threats, particularly secondary sanctions targeting buyers of Venezuelan oil. Tariffs are impacting short-term prices and unsettling long-term investment. In a recent Dallas Fed survey, US oil producers cited policy unpredictability as a major concern, with many hesitant to invest in new capacity. Shale producers, who rely on constant reinvestment due to rapid well depletion, warned that prices below $65 per barrel would make operations unprofitable, potentially leading to production shut-ins. Despite President Trump’s pledge to increase output and lower prices, his trade policies may have the opposite effect.
Beyond upcoming data releases, the key domestic focus will be the budget vote next week. Reports suggest parties have yet to agree on the proposal, particularly the contentious VAT increase.
Locally, two major data points are due on Tuesday. While these fall on April Fools’ Day, the Absa Manufacturing PMI and vehicle sales data are no joke. The PMI has remained in contractionary territory for four straight months, with weak activity and new orders declining. The rise in the purchasing price index in February also signals pressure on margins. Recent Stats SA data confirmed ongoing weakness in manufacturing output. On a more positive note, vehicle sales have been a strong performer. Naamsa reported a 7.3% y-o-y increase in February, following robust growth in January.
Globally, attention turns to China’s NBS and Caixin PMIs (Monday and Tuesday), both of which were in expansion in February. In the EZ, flash inflation data for inflation and unemployment are due on Tuesday and Wednesday, with the former expected to edge closer to the European Central Bank’s (ECB) 2% target. Easing inflation, especially when compared to its peers, has allowed the ECB to steadily lower interest rates. Unemployment has been stable since 2024Q3. Also due is the ECB’s consumer inflation expectations survey. After a jump in December, 12-month ahead consumer inflation expectations fell to 2.6%. Germany’s inflation data will be released ahead of the EZ on Monday.
In the US, the spotlight is on next Friday’s nonfarm payrolls and unemployment data. The labour market has remained resilient. While the US Federal Reserve (Fed) is wary of persistent inflation, it also remains focused on employment, as reflected in its slightly higher unemployment rate forecast in March.
The FNB/BER Consumer Confidence Index (CCI) plunged from -6 to -20 index points in the first quarter of 2025. The 14-point decline matches the sharp drop seen in 2023Q1 when South Africa entered stage 6 load-shedding for the first time. The fieldwork for the Q1 survey began shortly after the postponement of the 19 February Budget Speech, when news broke of the Finance Minister’s (ultimately aborted) proposal to raise VAT by two percentage points. The prospect of higher taxes—whether through a VAT hike or further personal income tax bracket creep—likely rattled consumers.
A brief return of stage 6 load-shedding during the survey period may have further weighed on confidence. The Q1 reading of -20 is the lowest since the first half of 2023 and signals a notable deterioration in the outlook for consumer spending, following a relatively strong end to 2024. With consumers facing elevated real interest rates and higher taxes, structural reforms and confidence-boosting policies are needed to reignite growth momentum in the economy.
The composite leading business cycle indicator rose by 0.9% month-on-month (m-o-m) in January 2025. Four of the ten available component time series improved, while five declined and one remained unchanged. The largest positive contributions came from an acceleration in the six-month smoothed growth rate in new passenger vehicle sales and an increase in the number of residential building plans approved. The most notable negative contributors were a decline in the average hours worked per factory worker in the manufacturing sector and a slowdown in the six-month smoothed growth rate of job advertisements, signalling continued caution in hiring. The continued weakness in manufacturing is a concern, though not unexpected as it aligns with the persistently downbeat sentiment reported in the Absa Manufacturing Survey. Overall, while the January uptick is welcome, it does not yet point to a broad-based strengthening of the business cycle.
Producer Price Index (PPI) inflation for final manufactured goods came in below expectations in February, easing to 1.0% year-on-year (y-o-y) from 1.1% in January. Encouragingly, PPI inflation has remained subdued in recent months, supporting a favourable near-term outlook for Consumer Price Index (CPI) inflation – even as CPI is expected to accelerate later in the year.
Lower petrol and diesel prices have been a key factor holding down annual PPI inflation. However, a point of concern is the PPI for electricity and water, which accelerated to 10.8% y-o-y in February from 10% in January. Given the importance of these inputs in manufacturing, sustained increases could likely place upward pressure on producer and consumer prices this year.
The final estimate of US GDP revealed that the US economy expanded by 2.4% q-o-q (annualised) in 2024Q4, slightly better than market expectations and the previous estimates, which were at 2.3% q-o-q growth. The upward revision to the final print primarily reflects a downward revision to imports. Importantly, personal consumption remained the main driver of growth, despite coming in a touch lower than previously estimated (increasing 4% q-o-q vs. 4.2%). This confirms that the US economy ended 2024 reasonably strong (and with momentum going into 2025), which could offer somewhat of a buffer from policy uncertainty this year.
In the US, the flash S&P Global composite PMI rose to an above-consensus 53.5 in March, rebounding after slipping to a ten-month low of 51.6 in February. The uptick in business activity was led by the services sector (54.3 in March vs. 51 in February), offsetting a renewed contraction in manufacturing output (49.8 vs. 52.7). Cost pressures surged in March, particularly in manufacturing. This was mainly credited to tariffs, though increased staffing costs were also widely reported. The effects of the Trump administration’s policies were also reflected in business expectations for the coming year. These fell to their second lowest since October 2022, as companies became more cautious due to concerns about customer demand and the impact of new administration policies.
The HCOB EZ Composite flash PMI ticked up to a below-consensus 50.4 in March from 50.2 in February. This marked a third straight month of improving, albeit marginally, business activity across the region. Manufacturing output notably rose at the fastest pace since May 2022, joining services in expansionary territory for the first time in two years. This was driven in part by a significant rebound in Germany’s manufacturing output, which also supported overall business activity in the EZ’s largest economy. In contrast, activity in France contracted for the seventh consecutive month.
Further positive news came from the German Ifo business climate index, which reached 86.7, its highest level since July 2024, aligning with consensus expectations. This increase was driven by heightened optimism among businesses about future prospects, which rose to 87.7 from 85.6 in February
In the UK, the S&P Global Composite flash PMI surprised to the upside, increasing from 50.5 to 52 in March. Business activity registered the highest growth in six months. However, this was solely led by service sector activity (53.2 vs 51), while manufacturing output (44.6 vs. 47.3) worsened as mounting global economic uncertainty constrained demand. On the price front, input cost inflation eased further. Conversely, increases in average selling prices were reported across the private sector economy in March, particularly in the service sector.
Meanwhile, UK inflation eased more than expected in February but was in line with the Bank of England’s (BoE) forecast. Annual consumer inflation cooled to 2.8% y-o-y, down from 3% in January, as clothing and footwear prices fell for the first time in more than three years (-0.6% vs 1.8%). In contrast, food inflation was unchanged at 3.3% y-o-y and prices rose faster for transport and restaurants and hotels. Meanwhile, the core inflation rate also declined, easing to 3.5% y-o-y from 3.7%.
Editor: Tracey-Lee Solomon
Tel: +27 (0)21 808 9755
Email: tsolomon@sun.ac.za
Click here for previous editions of this publication.
Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 28 Mar 2025
