General
Publications & Data
Join the conversation
Social Links
Social Links
Lisette IJssel de Schepper
There are many cliches one could use to sum up this week, but one does not want to underplay its significance by joking about it—although some of the jokes do write themselves… Starting at home, Budget 2.0 was adopted in the National Assembly. While the certainty this brings (for now) is welcome, the concern shifts to the future of the government of national unity (GNU) – more on the past week’s developments below. On top of this, it was an eventful week on the global front too. Liberation Day in the US sent shock waves through financial markets, with the reciprocal tariffs announced by US President Donald Trump being much more severe than expected (or hoped for).
On Wednesday evening, in what felt like a gameshow, Trump dished out ‘kind’ reciprocal tariffs to countries left, right and centre while holding a huge board with the names of some of the worst offenders (SA included). In theory, reciprocal tariffs should take into account both tariff and non-tariff trade barriers to essentially level the playing field between importers and exporters. While it is fairly easy to get a grip on actual tariffs imposed by a country, non-tariff barriers are much more difficult to calculate, and the process of calculating a ‘correct’ reciprocal tariff is thus a time-consuming and tricky exercise. The ‘reciprocal tariffs’ implemented by the US are calculated in a much simpler fashion by essentially dividing the country’s trade deficit with the US and then the country’s imports into the US, and then halving this to make it ‘kind’. Of course, the trade deficit and imports do not accurately reflect the barriers to trade the US faces, but alas, with marginal differences, this is the approach taken by the US. There are some exceptions; for example, oil and semiconductors are excluded, but then some goods categories (automobiles) face uniform tariffs regardless of the country of origin (all automobile imports face 25%, for example). While Mexico and Canada did not get slapped with higher tariffs than the 25% they currently face, it was announced that China would get an additional 34% tariff on top of the 20% currently charged. Countries lucky enough to escape a reciprocal tariff still face a 10% universal tariff – even countries with which the US has a trade surplus. SA was not spared and faces a 30% tariff on its exports to the US. This will hit the automotive sector and some agricultural sectors the hardest – although we need to be mindful that a tariff on all producers of a particular good worldwide just pushes up the price in the US. Importantly, some key exports, most notably PGMs, are excluded from the 30% tariff, which softens the blow. Neighbouring Lesotho, which exports diamonds and textiles to the US, was hit by a 50% tariff – the highest of any sovereign nation.
Initial estimates of the potential impact show that it is significant. For example, JP Morgan said this would be enough to tip the US and global economies into recession this year. A concern echoed by many other US experts. Meanwhile, estimates for US inflation are being revised upwards, but because of the expected hit to the economy, markets are pricing in more interest rate cuts than before. Late yesterday, markets were toying with four more 25bps rate cuts by the US Federal Reserve this year.
When markets opened on Thursday, US stocks tumbled further down while US 10-year yields dipped to five month lows close to 4%. The S&P 500 lost 4.8% on the day (the local JSE ALSI 4.5%), which is the biggest drop since June 2020 (COVID). The worrying part is that the Trump administration must have known that markets would react negatively (they have done so following every tariff announcement/threat we have seen so far), but they still went ahead. They potentially hope that the revenue from the tariffs (which will be significant, although this will essentially be paid by the US consumer and not by foreign countries as Trump seems to think) could be given back to consumers in the form of tax cuts next year. For now, the president does not seem too worried, saying the market reaction is going “very well”.
Of course, Trump has used tariffs as a negotiation tool before, and countries that appease the US may see lower tariffs going forward. However, countries may also retaliate by imposing tariffs on the US or implicating the US in another way. Germany and France are reportedly pushing for fairly direct action, targeting US tech and services. Things could get very messy, very quickly.
The tariffs are generally expected to be inflationary, but in a twist, OPEC+ announced that it would increase output by pulling back its production cuts. The Brent crude oil price moved sharply lower, which, if sustained, should have a significant deflationary impact. Financial market movements were extreme yesterday. The euro surged, causing the rand to weaken by more than 5% against the stronger euro while also briefly depreciating past R19/$ yesterday morning.
It feels a little pointless to put numbers to the potential economic impact of it all at this stage. Financial markets will need some time to settle, with SA assets hit by global whims and local developments at the same time, and the US may backtrack on some of the announcements – or invade Greenland while they are at it. Beyond the direct trade impact and the consequent impact on production, sentiment has taken a serious knock. The BER is in the middle of a forecast update and will release an updated forecast to clients as soon as we can – although scenarios relative to the baseline will matter more than usual.
Claire Bisseker
On Wednesday, the 2025 budget was adopted in the National Assembly by 194 votes to 182 after weeks of divisive horse-trading between political parties, which has imperilled the future of the GNU. The DA, FF+, MK and EFF voted against adopting the fiscal framework (in objection to the 0.5%pt VAT hike and deeply unpopular personal income tax (PIT) measures) while ActionSA, Rise Mzansi, Bosa, GOOD, the IFP and a host of smaller parties supported the ANC in passing it.
However, the motion which endorsed the fiscal framework, advanced by ActionSA and adopted by parliament’s joint finance committees, is problematic because it is conditional on removing R31.5bn worth of VAT and PIT increases. However, the motion only “recommends” (rather than “instructs”) the National Treasury to return to parliament within 30 days with alternative revenue measures and/or expenditure cuts to fill the gap. As such, it is not a legally binding requirement.
A further problem is that the National Treasury is not empowered to remove the VAT hike. It will take effect from May 1 in terms of the VAT Act, irrespective of the fact that many parties in parliament are strongly opposed to it. The only way to prevent it from going ahead is for parliament to pass another law to this effect.
The DA has gone to court, arguing that the parliamentary committee process was unlawful and unconstitutional. It also wants the court to stop the VAT increase on the basis that the finance minister should not be able to issue a VAT increase by diktat before parliament has had a chance to pronounce on the matter.
The DA’s Federal Executive is meeting to determine the party’s continued participation in the GNU, but it’s clear that relations between the DA and the ANC have hit rock bottom, and the future of the GNU hangs by a thread. If the DA does quit the GNU and return to the opposition benches, the ANC will probably seek to draw smaller parties like ActionSA, Bosa and Rise Mzansi into the GNU, but this means it would face a mighty tussle to muster a majority every time it seeks to pass legislation.
From a data perspective, the US consumer inflation print is the most important release next week. Later today we will still see the US nonfarm payrolls, which is expected to reflect a slowdown in monthly job growth. Although our own governor would tell you that historic inflation matters little for interest rates going forward, especially when economic conditions change so rapidly as they are currently. However, markets will be ultra-sensitive to any surprises relative to consensus. There are unlikely to be surprises in the Fed minutes released mid-week, although there will be forward-looking statements to scrutinise. It will be more interesting to see if and how the preliminary Michigan consumer sentiment print and accompanying inflation expectations will reflect recent developments.
Locally, the manufacturing production data for February will be of interest. The Absa PMI stayed weak in the month, which does not bode well for the sector after output declined by 3.3% y-o-y in January.
Beyond the data, the liberation-day tariffs should kick in on 9 April. Amendments in the meantime or postponements are possible, with signs of the US willing to back down potentially positive to markets. Locally, all eyes will be on the GNU.
Nadia Matulich
The Absa PMI rose by 4 points from 44.7 in February to 48.7. Although this marks the fifth consecutive month in contractionary territory for the local factory sector, it represents the mildest contraction in the period and the highest reading since 52.6 in October. Encouragingly, both the business activity and new sales orders indices increased amid an improvement in export sales, though they remained below the neutral 50-point mark. On the downside, the expected business conditions index worsened, reflecting the sluggish recovery in activity amid the return of load-shedding and strained SA-US relations.
The S&P Global PMI edged down from 49 in February to 48.3 in March, recording a fourth straight month of contraction. Respondents cited weak domestic demand, lower employment, and heightened uncertainty as key drags on performance. Nonetheless, the firmer rand helped ease price pressures. International demand showed signs of improvement, driven largely by African markets, which helped offset weaker demand from the US and Europe. Looking ahead, sentiment remains subdued, weighed down by global trade headwinds.
Importantly, the March PMIs reflect conditions before President Trump’s Liberation Day tariffs were announced. These introduced a 30% levy on SA imports to the US. How this will play out remains to be seen, but the heightened uncertainty and volatility are clearly unhelpful and may undermine the recent uptick in exports.
TRADE BALANCE REBOUNDS
According to SARS, February’s trade balance recorded a surplus of R20.9bn, a marked turnaround from the R16.8bn shortfall in January. Exports increased by R15.4bn in February, driven by gold, as well as both goods and passenger vehicles.
The naamsa vehicle sales for March bode well for exports going forward. These results indicated an export rebound alongside steady domestic sales. Domestic new vehicle sales were up 12.5% y-o-y in March, while exports increased by 31.1%.
In the SARB’s latest snapshot of money and banking statistics, private sector credit rose by 3.68% y-o-y in February (down from 4.59% in January), while the (M3) money supply grew by 6.05% (from 5 477 bn to 5 461 bn).
Nadia Matulich
Preliminary estimates show that Eurozone consumer inflation continued to ease in March, with the headline rate falling to 2.2% y-o-y, down from 2.3% in February and 2.5% in January. Indeed, this marks the lowest reading since November. Services inflation is estimated at 3.4%, a slowdown from 3.7% in February and the weakest services inflation print in nearly three years. Prices for food, alcohol and tobacco accelerated to 2.9%, up from 2.7%. Core inflation, which excludes energy and food, came in at 2.4% – below expectations of 2.5% and the lowest rate since January 2022.
The March ISM Manufacturing PMI fell to 49 from 50.3 in February, signalling a return to contraction in the factory sector after two months of marginal expansion. On the demand side, new orders dropped to 45.2, resulting in production easing to 48.3 and employment slipping to 44.7. All four input-side components – supplier deliveries, inventories, imports and prices – expanded in March, even as demand indicators contracted. This disconnect may reflect pre-emptive stockpiling by manufacturers in anticipation of tariff-related cost increases. Indeed, the prices paid index surged by 7 points to 69.4. While the PMI remains above the 42.3 threshold, suggesting continued overall economic expansion, the mix of weak demand and rising costs underscores mounting headwinds for the manufacturing sector and highlights risks to future growth.
Meanwhile, the services ISM fell by 2.7 points to 50.8.
Chinese manufacturing PMIs improved in March, supported by government efforts to stabilise the economy amid ongoing trade tensions. The official NBS Manufacturing PMI rose from 50.2 to 50.5 – its second consecutive month above the 50-point neutral mark. Production edged up slightly (from 52.5 to 52.6), and new orders increased from 51.1 to 51.8, indicating improving demand conditions. Input and output prices both fell – input costs declined from 50.8 to 49.8, and selling prices dropped from 48.5 to 47.9 – while business confidence eased to a three-month low of 53.8.
Similarly, the Caixin China General Manufacturing PMI rose from 50.8 to 51.2 in March, marking the sixth consecutive month above the 50-point threshold. Both output and new orders strengthened, with firms hiring to meet rising domestic and external demand. Falling input costs allowed manufacturers to reduce selling prices. Sentiment for the year ahead remained optimistic, in spite of ongoing trade-related pressures.
While both indices reflect improving conditions, the Caixin survey – which tends to focus more on smaller, export-oriented firms – pointed to stronger employment dynamics and more robust external demand compared to the NBS index. The divergence in hiring trends suggests that larger, state-linked enterprises may still be facing labour market constraints, whereas smaller firms are benefiting more quickly from policy support and recovering demand.
Editor: Lisette IJssel de Schepper
Tel: +27 (0)21 808 9755
Email: lisette@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, 04 Apr 2025
