House price growth slowing; web traffic to property portals recovering
In recent months global economic activity has come to a grinding halt, amid unprecedented disruptions to supply chains and global trade. To date, we have seen unprecedented fiscal and monetary responses to the current crisis from major economies around the world. Similarly, central bank policy rates have been cut in a synchronised manner. The SARB leading indicator improved by 0.7% m/m in March, the PPI for final manufactured goods slowed to 3.3% y/y in March and credit extended to the private sector eased to 7.4% y/y in April.
Annual house price growth fell to 1.9% y/y in April, down from 2.5% in March – the slowest pace since December 2009. We expect, as a base case, that house prices will decline by around 5% and transaction volumes by around 45% this year. Mining production increased by 7% y/y in February, following a rise of 7.5% in January. Manufacturing production decreased for the ninth consecutive month, contracting by 2.1% y/y in February 2020. The February retail sales volumes picked up momentum and increased by 2% y/y. The SARB opted to cut the repo rate by 50bps yesterday to 3.75%.
This week President Cyril Ramaphosa announced that the majority of the country will, by the end of the month, move to level 3 lockdown. South Africa, just like most economies, has been hit by three simultaneous shocks - a current account shock, a capital account shock, as well as a supply and demand shock. Given the large shocks to demand, we expect inflation to remain low throughout the forecast horizon. The weak growth and inflation outlook suggest that there is room for the SARB to ease the repo rate further.
The outbreak of Covid-19 has had a severe impact on global supply chains, leaving Sub-Saharan Africa heavily exposed to a downturn in economic growth. Most Southern African Customs Union countries will likely be adversely affected by low economic growth in South Africa. It is clear that the pandemic has adversely affected several economies in SSA as the region continues to grapple with “flattening the curve”, and authorities will need to strike a fine balance between limiting job losses and containing the spread of the virus.
Following an emergency interest rate meeting on Tuesday, the SARB's Monetary Policy Committee unanimously decided to cut the repo rate by another 100bps to a historic low of 4.25%. The FNB House Price Index showed that house price appreciation slowed to 2.8% y/y in March, the lowest print since May 2011 (i.e. in close to 9 years). Looking ahead, we expect Covid-19 to have a sharp but short-lived impact on SA's housing market.
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