South African Rand Rally as Business Outlook Improves
The South African rand traded around 17.8 per US dollar, its strongest level since July 25, supported by a softer dollar amid weak U.S. economic data and growing apprehension over upcoming Federal Reserve appointments and global trade tensions.
The market has shifted attention to whether South Africa can negotiate improved trade terms, as it faces a 30% duty on a broad range of exports to the U.S. starting August 8—the highest among Sub-Saharan African countries.
The US is South Africa’s third-largest trading partner, accounting for 7.5% of its total trade, with agricultural products particularly exposed.
South Africa’s private sector activity improved in July, according to S&P Global purchasing manager index released. The South Africa PMI® ticked higher in July, helped by a fresh uplift in new business and steadying output.
Employment growth continued, but cost pressures accelerated. The South Africa PMI rose from 50.1 in June to 50.3 in July, signalling a slightly stronger but marginal improvement in business conditions.
The headline index has now posted in growth territory for three months in a row. Out of the five sub-indices that make up the headline PMI, just new orders and employment contributed positively to the latest figure.
New orders increased during July, following a slight dip in June. Several companies reported an uplift in client activity, but economic conditions were still seen as challenging. Subsector trends were split in July, with expansions in services and wholesale & retail opposing downturns in industry and construction.
Domestic sales improved, while new export business dropped for the fourth month in succession. Output was broadly unchanged at the start of the third quarter. However, this still marked an improvement since June when a slight decrease was noted.
Firms in South Africa raised their employment for the second consecutive month in July. While the increase was moderate, it was the quickest recorded since May 2024. Survey panellists cited a mix of both permanent and temporary hires.
Higher employment supported business capacity, as did stabilising supply chains. This was signalled by an improvement in vendor performance for the fourth month running, as port congestion continued to ease.
Firms were thereby able to raise their purchases, although the pace of growth was only modest. In July, companies were better positioned to finalise existing orders and contracts, resulting in the quickest decrease in backlogs since February.
For some businesses, this allowed them to destock unused inputs, contributing to a slight decline in total inventories. On the cost front, the survey data indicated increased price pressures in July, largely driven by a sharper rise in staff costs.
Wage pressures climbed for the third consecutive month and remained well above the series trend. Purchase costs also rose at a faster pace, which panellists commonly attributed to higher charges for fuel and supplied materials.
Overall, the rate of input price inflation was the sharpest since April. Companies chose to pass some of their cost burdens onto clients, resulting in a further rise in output prices. However, the increase was modest and slightly weaker than in the previous month.
In contrast to the general price trend, the construction sector recorded decreases in both input costs and output prices. Finally, the year-ahead assessment for business activity improved during July, after hitting its lowest mark for almost four years in June.
Firms were more hopeful about future demand and new projects. The level of confidence was the highest since January, but remained weaker than the average recorded last year. CIBN Projects Cautious Optimism for Nigeria’s Economy
