May data confirms South African growth recovery

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Finance Minister Pravin Gordhan told a South African Chamber of Commerce and Industry (SACCI) event in Johannesburg that a collective response to the challenges we face could still result in growth of 1% this year rather than the 0.1% that the International Monetary Fund (IMF) is expecting.

“The 1% is a goal that I think we can achieve. It is a target not a forecast, as we live in very turbulent volatile times where every bit of news moves the markets in one way or the other. If you remember, David Cameron said after the Brexit vote that he would stay until October, but now he will be gone on Wednesday,” Gordhan says.

South Africa has been a beneficiary of the global financial turmoil as foreign investors have invested billions in South African government bonds and equities since the Brexit vote on 23 June. The 12 July marked the 18th day in a row of foreign inflows into South African bonds — the longest streak since 1998.

On a trade-weighted basis, the rand bottomed on 20 January 2016 at 49.98 and has since risen by 16.5% to 58.25 on 12 July, indicating a recovery in foreign investor perceptions of South Africa as well as an improvement in our terms of trade as commodity prices rose. This improvement in our terms of trade is confirmed by the swing from a R17.964bn foreign trade deficit in January to a record R18.731bn surplus in May.

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The 16% y/y improvement in the value of exports to R104.7bn in May was reflected in the 4% y/y rise in manufacturing production in May after a 2.1% y/y decline in March. The increase in production and exports has in turn generated income that was spent in shops, so real retail sales increased by 4.5% y/y in May from a 1.6% y/y gain in April. This means that Cape businesses can look forward to a brighter future after the recent political turmoil that constrained business optimism.

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