South Africa’s economy showed signs of recovery in the final quarter of 2024, with GDP growth climbing to 0.6% q/q, a welcome rebound from the -0.3% contraction in Q3. On an annual basis, the economy expanded by 0.9% y/y, up from 0.3% in the prior quarter. Yet, these figures fell shy of market expectations, which were for quarterly growth at 0.8% and yearly at 1.0%. From Q3 to Q4, three sectors—trade, agriculture, and finance—buoyed the numbers, together contributing 0.9% to GDP growth. Notably, however, gross fixed capital formation dipped by -0.7%, erasing a modest 0.3% gain from the previous quarter and trimming 0.1% off the total. Looking to 2025, this gentle upward trend may hold, but the economy remains off the pace to hit the government’s ambitious 3% growth target. That goal hinges on luring investment to revive crumbling infrastructure—a tall order requiring sharper industrial and labour policies to cut red tape and align with market needs, especially as fractures widen within the GNU.
Today, the local data card will be headline by the BER’s business confidence print for Q1. Recall that the index increased from 38 points to 45 points in Q4, marking the third consecutive quarter of improvement and the highest reading since early 2022. A combination of stable electricity supply, low inflation, GNU-related optimism and lower interest rates supported Q4’s outcome and should support this week’s reading as well. However, the unexpected bouts of load-shedding, ideological differences within the GNU and President Trump’s animosity towards South Africa, will likely weigh on future confidence levels. More broadly, South Africa still faces numerous structural impediments that must be addressed through pragmatic policymaking to sustain ongoing improvements in business conditions.
ZAR Markets
As the USD has come under broad-based pressure, the ZAR and other EM currencies have capitalised. The USD-ZAR is trading back below 18.5000 this morning, with the market having run into technical resistance north of the 50-session moving average at 18.6235. Risk appetite is also recovering after taking a hit earlier in the week due to the implementation of Trump tariffs, now supported by Chinese plans for strong fiscal support to reach an ambitious growth target this year. Additionally, the prospect of Germany reforming its debt break policy and injecting massive fiscal stimulus to support its economy is also providing a boost to market sentiment. The ZAR bulls will be targeting recent levels around 18.4000, but the bears may be cautious of the pair drifting too far from its 50-session moving average.
Global FX Markets
The U.S. dollar regained some ground on Wednesday but remained near a three-month low after President Donald Trump, in his first congressional speech since taking office, reiterated plans for reciprocal tariffs amid an escalating trade war. This follows new 25% tariffs on Mexican and Canadian imports and a doubling of Chinese goods duties to 20%, effective Tuesday. Canada and China retaliated immediately with their own tariffs, while Mexico’s President Claudia Sheinbaum promised a response by Sunday. The dollar found support as a safe-haven currency due to Trump’s renewed tariff threats, despite market volatility driven by trade war concerns. The euro, after hitting a three-month high of $1.0637, slipped 0.1% following a 1.3% surge on Tuesday, buoyed by Germany’s plan for a €500 billion infrastructure fund and borrowing rule changes. Analysts suggest further euro strength could hinge on increased defense spending and debt adjustments. Sterling dipped 0.06% to $1.2788, the yen fell to 149.88 per dollar, Canada’s loonie weakened 0.2% to C$1.4424, and Mexico’s peso recovered slightly to 20.60 per dollar. The dollar index rose to 105.62, close to its Tuesday low of 105.49, reflecting investor worries about U.S. economic slowdown and stagflation risks from tariffs and inflation. In China, new fiscal stimulus was announced to boost consumption and maintain a 5% growth target amid U.S. trade tensions, steadying the onshore yuan at 7.2610 per dollar, while the offshore yuan eased to 7.2618. Analysts anticipate potential monetary easing, which could pressure the yuan further. The Australian dollar fell 0.3% to $0.6254 despite strong economic growth data, and the New Zealand dollar dropped 0.26% to $0.5651, compounded by the unexpected resignation of Reserve Bank Governor Adrian Orr, effective March 31.