LOAD-SHEDDING RETURNS, G20 MEETINGS TAKE PLACE AND MORE BUDGET TALK
Bureau for Economic Research (BER)
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This is an extract from the Weekly Review of 28 February 2025. The full Weekly can be found here (for free, but sign up if you want to receive notifications of new editions and other BER publications)
The Week In Perspective written by Lisette IJssel de Schepper
The domestic news headlines were dominated by the aftermath of the postponed Budget, G20 developments and, disappointedly, load-shedding. Stage 6 load-shedding returned for the first time since February last year due to several unit trips at power stations. Load-shedding was suspended on Wednesday morning when emergency reserves were replenished and lost generation capacity was recovered.
We have added to the Budget debate in various ways (see here for a column in today’s Business Day and here for a piece on why we cannot let this fiscal crisis go to waste). Because the embargo has been lifted, we could also do a rough estimate of the implications of the aborted Budget on our macro forecast. The biggest and most obvious impact would be an increase in inflation. Our modelling suggests that headline consumer inflation could be about 1%pt higher relative to our January baseline. This can even prompt the SA Reserve Bank (SARB) to hike the repo rate, should it strictly follow a so-called Taylor rule (which we know it does not, but it does show how a potential VAT hike could work itself through the economy. For example, while investment is not directly impacted by VAT, it would be hurt by a higher interest rate environment). Media reports suggest that the two biggest parties of the GNU remain far apart when it comes to agreeing on how the books should be balanced – but of course, the books will not balance without either a cut in expenditure or a hike in tax (or, most likely, a bit of both). Just as an aside, should the Budget not be tabled or passed on 12 March (or before the end of the financial year), government financing continues as per the Medium Term Budget Policy Statement released in October last year.
On the global front, US President Donald Trump’s messaging around tariffs was initially confusing—especially when it came to starting dates for the planned tariffs on Canadian and Mexican imports. Yesterday, he said that the 25% tariffs on Canada and Mexico would start on 4 March, with an additional 10% tax imposed on China. Trump again said he would impose 25% tariffs on “cars and all the other things” from the European Union without providing details. Unfortunately, closer to home, Bhekisa reports that US-funded HIV organisations in SA received letters that they will be shut down permanently – similar institutions elsewhere in Africa have also received such letters. According to Bhekisa, there is very little communication from SA’s government side, which makes the process even more difficult.
Meanwhile, Ukraine and the US agreed to establish a joint fund to collect and reinvest revenues from Ukrainian natural resources. The deal does not include the security guarantees Ukraine wanted, however, it also does not require Ukraine to pledge $500bn worth of resources as payment for past military aid. The German election resulted in Friedrich Merz’s Christian Democrats (CDU/CSU) becoming the largest party, with 208 of the parliament’s 630 seats. Nonetheless, Merz still needs to compile a coalition government. The hard-right Alternative for Germany, which saw a surge in support and received the second most votes, ?is not likely to join the new government.
In financial markets, the confirmation that Trump would implement tariffs on Mexico and Canada, as well as China, from next week boosted the US dollar. In step, the peso and looney lost ground. The rand also slipped yesterday after remaining largely flat to the dollar through the week. Cryptocurrencies, which surged following Trump’s election, are running out of steam (patience), and Bitcoin tumbled below $90?000 – the lowest since November.
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Editor: Lisette IJssel de Schepper Email: [email protected]
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