Data published yesterday showed South Africa’s Manufacturing PMI dropped to 44.7 in February from 45.3 in January, signalling a fourth straight month of decline—and the sharpest since August 2024. Weak demand, global trade tensions, and logistical snags drove the downturn, with business activity, sales orders, and employment all languishing. A softer rand and surging fuel costs piled on pressure, deepening the sector’s woes. Export sales slumped amid faltering global demand, while supply chain hiccups hampered production. Employment woes lingered, reflecting cautious business sentiment, which soured further as optimism for future conditions faded. Moreover, Load-shedding’s return and geopolitical jitters darkened the outlook. The sector is buckling under weak demand, disrupted supply lines, and rising costs. If these pressures endure, South Africa’s economic growth could falter, dragging down jobs and investment in a ripple effect that threatens broader stability.
Weak growth has long been the central theme of South Africa’s economic story. This will likely be the case again in today’s print of Q4 GDP data. Bloomberg consensus forecasts a Q4 GDP growth of +0.8% q/q, which would be a turnaround from Q3’s -0.3% contraction. Year-on-year, the economy likely expanded by +1.0%, up from +0.3% in Q3 2024. Lower interest rates, tame inflation, and a confidence boost fuel this uptick. Agriculture, after a brutal -29.6% plunge in Q3, is expected to recover, lifting the outlook. Yet, even if today’s data hits the mark, 2024’s full-year growth limps at +0.5%. This would mark a third consecutive year of slowing annual growth, despite load-shedding’s end and GNU-driven optimism. The modest rebound underscores deep structural hurdles that require significant reforms to fix, and there is still some doubt that the political will exists to enact them, GNU notwithstanding.
ZAR Markets
The Trump administration’s relentless disruptions hit the global economy again, enforcing 25% tariffs today despite hopes of a bluff. Mexico, Canada, and the EU, spurred by China’s defiance and planned countermeasures, signal retaliation, threatening US exports. This bodes ill for US economic growth at a time when the business cycle is already turning lower due to a prolonged period of tight monetary policy. Unsurprisingly, stock markets face intense strain as investors brace for a surge in volatility, poised to rattle emerging market currencies. However, balancing this slightly are falling US Treasury yields, with Fed funds futures now anticipating a third 25bp rate cut by year-end. The USD, therefore, hasn’t rallied amid the rising turbulence; instead, it’s weakened as investors adjust for expected global retaliatory measures against the US. The USD-ZAR, however, is trading closer to the ceiling of its recent range just north of 18.6000, consolidating Friday’s rise from levels closer to 18.4000.
Global FX Markets
The dollar experienced pressure at the start of the week with lower US Treasury yields and better risk on conditions pulling rug from under the USD Index. The index hit a low of 106.45 yesterday and has already breached that level this morning in Asia recording a low of 106.39. Upside surprises in many of the world’s PMI readings yesterday buoyed risk sentiment allowing the EUR/USD to clear the EUR/USD1.0500 mark almost erasing the losses seen late last week. The charts are pointing to further gains as possible however the February high of EUR/USD1.0528 may be a tough nut to crack until further clarity is received around a potential Ukraine/Russia peace deal. Cable recovered at the start of the week breaking above the GBP/USD1.2700 mark. Closing above the big figure was a touch too far for pound bulls. This level is important from a technical perspective with many highs and lows scattered around the big figure. The major risk event of the week comes in the form four BoE members, including Governor Bailey testifying to the Treasury Select Committee on Wednesday. This will give the market further insight into the outlook for monetary policy out of the UK in the coming months. Speculators have made their largest-ever bet on the Japanese yen’s rise, anticipating further Bank of Japan interest rate hikes. The yen has strengthened by 4% this year due to rising inflation, challenging the previously popular yen carry trade. Net long positions in yen futures among non-commercial traders surged to a record 96,000 contracts as of February 25, up from 61,000 a week earlier. This long position, which bets on the yen’s appreciation, is valued at approximately $8 billion.