The rand was again the star this week, trading below R10 against the US dollar and even ending the week under R17.70.It was a busy week on the data front with news about a slight increase in gross domestic product in the second quarter, the current account deficit narrowing, business confidence edging higher, new vehicle sales slumping and the rand staying under R18 to the dollar.
“The IMF recognised South Africa’s resilience but stressed the need for reforms to tackle rising debt, high unemployment, declining gross domestic product per capita, inequality and poverty. They recommended a 3% GDP expenditure-based consolidation over the next three years to stabilise debt, with the goal of reducing debt to 60-70% of GDP within 5-10 years, while protecting vulnerable groups. In the end, the IMF judged South Africa’s ability to repay the loan as adequate.
“The boost will likely come from continued improvements in consumer demand as inflation falls further and interest rates start to decline, bolstering real incomes and lowering borrowing costs. An added boost could also come from households’ access to contractional savings enabled by the two-pot retirement system.”
According to Matshego and Nkonki they expect a smaller trade surplus during the remainder of the year. “Imports will likely rebound by more than exports. Imports will get a boost from the ongoing recovery in domestic demand as consumer spending accelerates amid rising real incomes and lower interest rates.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say this data suggests that the deterioration in the current account deficit that is anticipated for this year may be limited. “However, logistical constraints remain a key hindrance to export growth and alongside rising domestic demand, increases the odds of worse current account dynamics over the medium term.