South Africa’s unemployment crisis deepened in Q1, with the official rate climbing to 32.9% from 31.9% in Q4 2024, while the expanded rate (including discouraged work-seekers) surged to 43.1% from 41.9%. This uptick underscores the persistent structural challenges plaguing the economy, driven by years of ineffective policies that have marginalised households. Alarmingly, the unemployment rate has lingered above 25% for over a decade, a damning indictment of governance failures in fostering economic growth. Annual figures show stagnation, with unemployment unchanged from Q1 2024 and employment growth at a mere 0.3%. South Africa’s labour market, hamstrung by poor governance and structural inefficiencies, ranks among the world’s worst. With population growth outpacing economic forecasts below 1%, meaningful improvement seems distant. To reverse this, the Government of National Unity (GNU) must prioritise educational reform and economic liberalisation, potentially through privatisation, to unlock a more dynamic economy.
On a more positive note, President Ramaphosa will travel to Washington next week for a challenging meeting with US President Trump. Ramaphosa aims to achieve three key objectives: discussing South Africa’s political landscape and economic policies, exploring a potential trade agreement, and securing US support for HIV/AIDS initiatives. However, Trump is expected to press Ramaphosa on contentious issues, including South Africa’s geopolitical stances on Israel, Russia, and Iran, as well as domestic ANC policies that clash with US interests. The meeting poses significant risks for Ramaphosa, who must navigate these pressures carefully to avoid being sidelined or publicly criticised. With both leaders representing starkly different priorities, the discussions will test Ramaphosa’s diplomatic finesse as he seeks to strengthen bilateral ties while defending South Africa’s positions. A misstep could see him used as a cautionary example on the global stage.
ZAR Markets
Milder-than-anticipated US inflation figures triggered a depreciation in the USD, which lent support to the ZAR yesterday afternoon. This followed disheartening South African labour market data that laid bare the profound structural weaknesses entrenched in the nation’s economy. This morning, the ZAR finds itself once again at the mercy of global foreign exchange currents, taking its cues primarily from developments in the US and the USD, while also reacting to broader geopolitical events, predominantly those involving the US. A generally softer USD should bolster the ZAR’s resilience for now, keeping speculative positioning in check. However, it is noteworthy that the USD-ZAR has drifted away from its 200-session moving average at 18.2056, which previously kept the market anchored.
Global FX Markets
The U.S. dollar has consolidated in Asia following yesterday’s pull back, driven by softer-than-expected U.S. consumer inflation data (0.2% vs. 0.3% expected), supporting expectations of Federal Reserve rate cuts. Despite a temporary U.S.-China trade truce and improved trade outlooks with Britain, India, Japan, and South Korea, upcoming U.S. tariffs may increase import costs, potentially fuelling inflation. The dollar index remained flat at 100.94, with minimal changes against major currencies like the yen, euro, sterling, Swiss franc, and Chinese yuan. Analysts predict a short-term 2-3% rise in the dollar due to reassessed economic outlooks but note its safe-haven status may be weakened by erratic U.S. policies. The dollar remains 3% below its April peak, with global asset managers heavily underweight on the currency. The Fed is cautious, with traders expecting about 50 basis points of rate cuts by year-end, likely starting in September.