By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
On 30 October 2024, Finance Minister Enoch Godongwana will present the 2024 Medium Term Budget Policy Statement (MTBPS), offering an updated view of the medium-term fiscal framework. This will be the first MTBPS presented under the Government of National Unity (GNU), and it is expected to reinforce the government's ongoing fiscal consolidation efforts.
As part of the broader reform agenda, we anticipate a stronger focus on Public-Private Partnerships (PPPs), a crucial strategy for bolstering private-sector involvement in public infrastructure projects. This MTBPS will likely outline specific initiatives to enhance private-sector participation, supporting the government's goal of driving economic growth through collaborative investments.
A recap of the February 2024 Budget growth projections
In the 2024 Budget, Treasury projected average economic growth of 1.6% over the forecast period, with 1.3% growth anticipated for this year, rising to 1.6% in 2025 and 1.8% in 2026. However, the 2024 growth forecast of 1.3% may be revised downward, given weaker-than-expected outcomes in 1H24. Despite this, medium-term growth projections for 2025 to 2027 will likely signal a modest recovery from 0.7% in 2023. Nonetheless, these projections may remain conservative and fall short of our modest 2.0% average forecast over the same period.
Readings from the first five months of 2024/25
Fiscal data for the first five months of the 2024/25 fiscal year shows gross tax revenue up 3.7% year-to-date (YTD) compared to the corresponding period last year. This is below the projected 7.6% growth for the fiscal year, highlighting mixed outcomes across tax categories.
Overall, the divergent performance across key tax categories suggests that gross tax revenue could fall below expectations by an estimated R19.8 billion. This shortfall in the current fiscal year may also signal slightly lower revenue projections in the outer years.
Non-interest expenditure is up 3.6% YTD, closely tracking the 2024 Budget projection of 3.9% growth. However, there are significant expenditure risks, including the deteriorating balance sheets of municipalities and state-owned enterprises, which may lead to additional bailout demands1. Meanwhile, debt-service costs have risen by 8.0% YTD, outpacing the 7.3% growth forecast for the current fiscal year. This signals mounting spending pressures, compounded by subdued economic growth, which could widen the fiscal deficit for 2024/25 beyond the 4.3% of GDP projected in the 2024 Budget. We expect the fiscal deficit to be around 4.4% of GDP or slightly worse. This, together with growing debt redemptions, may either delay debt stabilisation or push the peak level above the Treasury's projection of 75.3% of GDP in 2025/26. The former would align more closely with our baseline scenario, which anticipates debt stabilisation only after 2025/26 when ongoing reforms are expected to boost growth above 2.0%.
Week in review
The leading business cycle indicator declined by 0.7% m/m in August to 112.8. This was primarily due to declines in seven of its ten components. The most significant negative contributors were a slowdown in the growth of the real M1 money supply and a decrease in export commodity prices. However, there were some positive signs. Business confidence improved, and more residential building plans were approved, though their impact was not enough to offset the negative contributions. That said, on an annual basis, the leading indicator continued to show an expansion, rising by 2.4% y/y, suggesting that the recovery trend remains intact.
Consumer inflation eased further to 3.8% y/y in September, down from 4.4% in August, marking the first dip below 4% since March 2021. Monthly inflation remained subdued at 0.1%. Core inflation held steady at 4.1% y/y, with a monthly increase of 0.3%, counterbalanced by a 3.8% monthly decline in fuel prices. The main driver of this inflation slowdown was a 1.2% y/y decrease in transport costs, reflecting a sharp 9.0% y/y drop in fuel prices. Food inflation remained stable at 4.1% y/y, though monthly food price pressure was 0.4%. Looking ahead, we expect inflation to bottom out around 3.0% in October and stay below 4% through the first half of 2025, as weak domestic demand keeps core inflation stable and continued declines in fuel prices support lower transport costs.
Week ahead
On Tuesday, Private Sector Credit Extension (PSCE) data for September will be released. In August, PSCE growth accelerated to 4.9% y/y, up from 3.5% in July. This increase was primarily driven by the corporate sector, while household credit growth moderated. Nevertheless, when adjusted for inflation, PSCE experienced modest growth of 0.5% in August, marking the first expansion in 12 months. That said, year-to-date inflation-adjusted PSCE remains down by 1.1% on average, highlighting unfavourable demand-supply dynamics amid high borrowing costs and tightened credit conditions.
On Thursday, Producer Price Inflation (PPI) data for September will be released. In August, PPI moderated further, reaching 2.8% y/y from 4.2% y/y in July. Year-to-date (January to August), producer inflation has averaged 4.4%, significantly lower than the 7.9% recorded over the same period last year, reflecting sustained easing of inflationary pressures. We expect further moderation in producer inflation in September, potentially below 2.0% y/y, primarily reflecting favourable petrol and diesel price dynamics.
Also on Thursday, the trade balance for September will be published. In August, trade recorded a surplus of R5.6 billion, down from a R17.1 billion surplus in July as monthly exports declined while imports increased, compressing the trade surplus. The cumulative trade surplus for January to August reached R88.9 billion, significantly higher than the R44.8 billion recorded during the same period last year.
On Friday, the Manufacturing PMI for October will be released. In September, the PMI increased to 52.8 index points, from 43.6 in August largely supported by improvedbusiness activity, sales orders, and near-term expectations. While the index has been choppy in recent months, it averaged 49.6 points in 3Q24, up from 47.9 in 2Q24 and 48.2 in 1Q24, suggesting that conditions in the manufacturing sector have improved, with local and external demand likely on an uptrend.
The week will close off with the October new vehicle sales data on Friday. In September, new vehicle sales totalled 44 081, a decline of 1 889 units or 4.1% compared to September 2023. Year-to-date, vehicle sales reached 401 169 units, a decline of 5.8% when compared to the same period last year, indicating weaker demand and tighter lending standards.
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 22 Oct | SA | Leading Indicator | Aug | 112.8 | 113.6 |
| 23 Oct | SA | CPI m/m | Sep | 0.1 | 0.1 |
| SA | CPI y/y | Sep | 3.8 | 4.4 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 29 Oct | SA | Private Sector Credit Extension | Sep | -- | 113.6 |
| 31 Oct | SA | PPI m/m | Sep | -- | -0.3 |
| SA | PPI y/y | Sep | -- | 2.8 | |
| SA | Trade Balance R billion | Sep | -- | 5.6 | |
| SA | Naamsa new vehicle sales % y/y | Oct | -- | -4.1 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 86,937.24 | 0.4% | 2.5% | 23.7% |
| USD/ZAR | 17.67 | -0.1% | 1.9% | -7.6% |
| EUR/ZAR | 19.12 | -0.3% | -0.8% | -5.4% |
| GBP/ZAR | 22.91 | -0.4% | -1.0% | -1.1% |
| Platinum US$/oz. | 1,029.55 | 3.4% | 7.2% | 13.4% |
| Gold US$/oz. | 2,736.17 | 1.6% | 4.1% | 38.2% |
| Brent US$/barrel | 74.38 | -0.1% | 0.6% | -17.5% |
| SA 10 year bond yield | 10.02 | 0.5% | 5.5% | -13.4% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 1.0 | 1.9 | 1.9 | 2.2 |
| Household consumption expenditure %y/y | 2.5 | 0.7 | 1.4 | 2.3 | 2.1 | 2.4 |
| Gross fixed capital formation %y/y | 4.8 | 3.9 | -0.8 | 5.4 | 3.9 | 5.3 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.5 | 4.3 | 4.7 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.4 | 5.0 | 4.6 | 4.5 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USDZAR (average) | 16.40 | 18.50 | 18.20 | 17.50 | 18.20 | 18.80 |
