The South African government has rejected a 12% wage increase request from public-sector workers, citing it as unaffordable. Instead, the government proposed a 3% increase, according to Frikkie de Bruin, general secretary of the Public Service Co-ordinating Bargaining Council. The workers’ demand would cost R140bn, which far exceeds the budget. De Bruin said the government urged labour unions to reassess their demands and consider alternative approaches. Negotiations will continue in October ahead of Finance Minister Enoch Godongwana’s mid-term budget update at the end of that month. Notably, the government’s offer is below the country’s inflation rate, but this highlights the fiscal challenges it faces after years of profligate spending. For South Africa’s fiscal premium to narrow, the government will need to hold a hard line and reject its labour union allies’ demands. If it is not able to do so at such a desperate time, much of the optimism priced into SA assets after the formation of the GNU could unwind.
On the data front, the card picks up today with the release of mining output stats for July and the BER’s inflation expectations gauge for Q3. Recall that mining production contracted by -3.5% y/y in June (vs +1.3% y/y in May), driven by consecutive PGM and gold production declines. While June’s mining print is disappointing, stagnation is unsurprising – output has struggled to remain at or near pre-COVID levels since 2022. As with recent manufacturing data, a lack of load-shedding has not positively shifted production levels; other structural limitations have just shifted to the fore. Although the mining industry’s prominence has decreased, it remains important and represents the key linkage between commodity prices and export strength. For that reason, markets will focus on the latest print today, which is expected to improve to +1.3% y/y.