MTBPS boosted market sentiment to set new records - Chris Harmse

The Minister of Finance Enoch Godongwana in his Medium-Term Budget Policy Statement (MTBPS) has highlighted certain burning issues that analysts, economists, investors, and fund managers were eager to hear. 

• The inflation target, as was expected, has been lowered to 3% (with a 1% tolerance band on either side) over the next 2 years. 
• Total government debt is projected to stabilise at 77.9% of GDP this year (higher than expected) before declining to 77% in fiscal 2028-29. 
• Treasury expects the budget deficit to shrink from 4.7% of GDP in 2025-26 to 2.9% in 2028-29. The primary surplus is expected to increase to 2.5% in 2028-29 from 0.9% in 2025-26.
• The government expects the economy to grow at 1.2% in 2025. This is lower than the 1.4% expected in the May main budget. Economic growth is forecast to remain at a modest level of an average of 1.8% over the next three years.
• The government is thinking of withdrawing additional tax increases proposed in May (announcement at February 2026 budget). Notable scrapping further VAT increases. 
• It is budgeted that the weekly borrowing need will be reduced by R750 million per week in 2026.

Financial markets reacted very positively.

In reaction to these targeted stabilisation fiscal proposals, as well as the more than expected sharp decrease in South Africa’s unemployment rate in quarter two (Q2) to 31.9% from 33.2% in Q2 (expectations were 32.7%) markets turned bullish. The all share index last Tuesday and Wednesday broke through 112 000, 113 000, 114 000 and even 115 000 levels in two days.

Although Wall Street's main indexes dropped on Friday, as technology stocks came under renewed selling pressure, dragging global markets lower, including RSA, equity, the gold price, and the Rand exchange rate ended the week on stronger levels. The All Share index on the JSE closed 2.8% higher for the week at a new week ending record level. The gold price increased by $76 per ounce to close the week at $4 079 per ounce. The Rand appreciated by 21 cents to R17.08/$ at the close on Friday, improved by 29 cents against the pound to R22.49/£ and by 12 cents against the Euro to close on R19.89/€ 

S&P global ratings lifted debt outlook to positive 

The prospects for South Africa’s credit rating were boosted on Friday when S&P Global Ratings lifted the nation’s outlook on its debt to positive from stable. “The positive outlook reflects our view that increased political stability following the May general elections and impetus for reform could boost private investment and GDP growth,” S&P reflected in its statement on Friday. The sovereign ratings agency also lifted South Africa’s foreign-currency long-term rating with one notch from BB- to BB. This is however still two notches below investment grade.

Wall Street tumbles as tech selloff extends as rate cut prospects fade.

On Wall Street large selloffs took place last Thursday and Friday as hawkish comments from Federal Reserve officials intensified doubts about an interest rate cut by the Federal Open Market Committee (FOMC) in December. These bearish movements in the US were supported by worries about stretched AI stock valuations have led to several pockets of selloff in recent weeks as Nasdaq experienced six sessions of declines, the index's longest losing streak since April. US indices, however, remained sideways over the week as the Nasdaq ended only 04% in the red, the Dow Jones gained 0.4% and the S&P500 advanced by 0.1%.

Prospects for this coming week

This coming week financial markets should open bullish based on the positive outlook by the rating agency S&P. Markets expect the Monetary Policy Committee of the SA Reserve Bank will not change the repo rate during their meeting this week. Statistics South Africa will release the inflation rate for October on Wednesday. Expectations are that the CPI annual increase will be 3.5% against the annual increase in September of 3.4%. This is above the new inflation target of 3%. 

On global markets investors, analysts and economists await the release of the US FOMC minutes this coming Wednesday. Apart from a few speeches by Federal Reserve members, key economic indicators for the US like manufacturing and industrial production, export and import prices and capacity utilisation figures will be released tomorrow. Elsewhere, the UK and the EU will announce their inflation rates for October (Wednesday), following by Japan (Friday).

Chris Harmse is the consulting economist of Sequoia Capital Management and a senior lecturer at Stadio Higher Education. 

*** The views expressed here do not necessarily represent those of Independent Media or IOL.

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