There was nothing particularly market-moving about yesterday’s local data releases, with mining output growing 0.3% y/y and manufacturing production contracting -1.2% y/y in August. While both sectors have been benefiting from improved electricity supply, they remain constrained by logistical hurdles that limit export capacity. It also remains to be seen how GNU-inspired economic confidence will translate into improved economic outcomes. Of course, this process will not occur overnight, so to speak, with reform progress set to take some time. Still, until there are signs of actual reform implementation, investment into South Africa’s economy may remain constrained and, in turn, economic data will continue to be weak.
On a more positive note, SARB Governor Kganyago said he expects inflation to drop below 4% in the coming months, offering more policy flexibility after the September rate cut. He highlighted fading global supply shocks and projected inflation to hit 3.6% by late 2024, averaging 4% in 2025. On the price front, South Africa’s inflation outlook is benefitting from an upswing in business confidence following the formation of the GNU, which has boosted the rand to the effect of dampening import prices. “There is now a positive vibe about South Africa,” Kganyago said, adding that the economy probably continued its rebound in the third quarter.