Yesterday, the growth projections in the IMF’s World Economic Outlook report attracted some attention. Following the initial US tariff announcements, the IMF cut GDP growth forecasts for nearly all nations, including South Africa. The global GDP growth forecast for this year was trimmed by 0.5% from 3.3% to 2.8%, significantly below the historical average of 3.7%. South Africa’s GDP growth forecast was revised down to 1.0% for this year and 1.3% for the next. This poses challenges for the finance ministry. With global growth faltering and domestic growth at a mere 1.0%, a VAT increase feels ill-timed. Coupled with the tariff effects, a higher tax burden stifles any chance of building economic momentum to break free from the low-growth cycle, where the budget deficit consistently outpaces GDP growth, further ballooning South Africa’s debt. A smarter strategy would involve bold reforms and easing the tax load on citizens, a stance echoed by several opposition parties in the GNU.
Today, the local data card will be headlined by CPI stats for March. Recall that headline CPI growth remained unchanged in February (3.2% y/y) despite expectations of an acceleration in inflation. Fuel became less deflationary, whilst food inflation rose to 1.9% y/y from 1.5% y/. Overall, inflation remains low and is expected to decelerate in March (3.1% y/y) mainly as a result of more deflationary fuel prices (95 octane inland was R22.34/L in Mar 2025 vs R24.45/L in Mar 2024) combined with low food inflation and a stable ZAR over the period. Slower inflation technically supports the case for further interest rate cuts, but we anticipated that the SARB will remain defensive in such an uncertain environment and only one more interest rate cut is anticipated in 2025.
ZAR Markets
Market sentiment has recovered overnight as US President Trump backed off from threats to fire Fed Chairman Powell, and expressed optimism that he would make progress with China that would substantially lower tariffs between the world’s two biggest economies. Although this has supported the dollar, the rand still appreciated to its 50-session moving average at R18.5721/$ yesterday. The market has run into some technical support at this level, and could consolidate yesterday’s gains through today’s session. However, when pulling the lens back slightly, there is scope for the dollar to depreciate further from a very overvalued position given the prospects for the US economy and its fading exceptionalism. The ZAR thus looks set to trade back towards the 18-handle in the coming weeks, although likely not without bouts of significant volatility.
Global FX Markets
The U.S. dollar surged and then stabilized after President Donald Trump retracted threats to fire Federal Reserve Chair Jerome Powell, easing concerns about the Fed’s independence. Trump’s comments on Tuesday, affirming he had no intention of removing Powell and expressing a desire for lower interest rates, boosted market confidence. The dollar rose over 1% against the yen and Swiss franc early in Asian trading but later steadied, with the euro at $1.14 and sterling slightly down at $1.3311. Optimism about potential de-escalation in U.S.-China trade tensions, with Trump and Treasury Secretary Scott Bessent suggesting tariff reductions, further supported market sentiment. Analysts noted that easing trade tensions and Trump’s focus on stabilizing asset prices could bolster the dollar, which had been near multi-year lows against some currencies. Additionally, Trump’s temporary suspension of steep tariffs on dozens of countries, with 18 already proposing trade deals, contributed to positive market dynamics. The dollar index fell 0.4% to 99.165 after a 1.5% jump the previous day.