Lower interest rates on the cards

Homeowners would have been relieved at the resumption of a downward trend in the consumer price index (CPI), which dropped from 5.9% in October to 5.5% in November. Motorists can also look forward to some savings in the New Year, with lower petrol and diesel prices having been announced by the Department of Mineral Resources and Energy. Since the end of 2023, lower fuel prices have been on the cards, mainly due to a fortuitous combination of lower oil prices and a stronger rand/US dollar exchange rate. Oil prices remain under pressure, due to uncertainty over demand and clear signs of more than adequate supplies, especially from non-Opec producers.

With the yield on South Africa’s 10-year bonds having dropped by 135 basis points over the past three months, pressure is mounting on the Reserve Bank to start lowering its benchmark repo rate. Lower interest rates during 2024 are now inevitable, and, with a bit of luck, lower fuel prices and a firmer rand exchange rate could make this happen during the first quarter of the year.

Record vehicle exports in 2023

South Africa’s motor vehicle industry is going from strength to strength, with 2023 recording record export sales, both in terms of the number of vehicles and their sales values. In terms of sales values, motor vehicle and component manufacturers have increased their contribution to total exports from 9.3% in 2022 to 12% in 2023. In the process, the value of motor industry exports of R223 billion for the first eleven months of 2023 has elevated the industry into third place in the rankings for export earnings. To date this year, only precious metals and mineral products have earned more foreign exchange than the motor industry.

Strong growth in construction activity

South Africa’s construction sector seems to have turned the corner and is heading for expansion in 2024. The Afrimat Construction Index (ACI) for the 3rd quarter of 2023 recorded a quarter-on-quarter increase of 9.2% and builds on the positive ACI growth rate of 5.8% recorded in the 2nd quarter of the year.

It is especially encouraging that the important indicator of job creation in construction continued to record a healthy growth rate, with 145,000 new jobs having been created since the beginning of 2023. Equally impressive is the increase of almost 10% in the volume of building materials produced in the 3rd quarter, compared to the previous quarter, with year-on-year growth also having returned to growth.

Despite the slump in the residential housing market, several key drivers of further growth in the construction sector may strengthen or emerge during 2024. They include the following:

• Progress with public/private partnerships or outright privatisation in the area of repairing, maintaining and expanding the country’s logistics infrastructure Progress with the inevitable and gradual switch to renewable energy, which is often linked to construction activities
• New capital formation in the economy, which recorded its 7th successive double-digit growth rate during the 3rd quarter of 2023 (year-on-year)
• A larger measure of price stability in the economy, which may lead to lower interest rates, hopefully early in 2024.