Absa CIB second quarter analysis

Amid growing concerns over supply side shocks and global economic uncertainties, Miyelani Maluleke, Economist at ABSA Corporate & Investment Banking, shared insights on the economic outlook for South Africa in the second quarter. Maluleke highlighted the theme of supply side shocks, attributing the potential slowdown in growth momentum to various factors such as the war in Ukraine, Chinese lockdowns, intensified load shedding domestically, and recent floods in parts of the country. While South Africa may not have direct trade links with Russia or Ukraine, the indirect effects of the conflict are expected to weaken growth across Europe, a significant trading partner for the country. Additionally, higher inflationary pressures stemming from global events are anticipated to impact disposable incomes, particularly affecting consumers. Despite a projected growth rate of 2% for the year, Maluleke noted that this may not be sufficient to significantly reduce the unemployment rate, which is forecasted to stabilize around 34%. The conversation also touched on the performance of the rand, with Maluleke suggesting that the currency is currently slightly undervalued and may see a gradual strengthening before a potential dip in the second half of the year. Regarding the recent interest rate hike by the Fed, Maluleke emphasized that South Africa's monetary policy decisions are based on domestic economic fundamentals, with policy normalization expected but not necessarily mirroring the US approach. While risks remain, the outlook remains cautiously optimistic, with support factors existing for the exchange rate amidst evolving global dynamics.