Annual house price growth declined to -1.1% in June, down from 0.5% in May - the slowest pace since June 2009 (just over a decade ago). We expect pressure to reverberate across all price segments, although higher-end and luxury markets will likely be the hardest hit this year.
This week South Africa was granted $4.3 billion worth of emergency funding assistance from the IMF under the Rapid Finance Instrument programme. Using these external finances to the benefit of the economy in combination with structural reforms will likely go a long way in lifting SA’s potential growth rate. Non-farm payrolls was relatively unchanged in 1Q20 and CPI edged up slightly in June to 2.2% y/y from 2.1% in May
In line with our expectations, the SARB opted to reduce the repo rate by 25bps to 3.5%. This translates into a cumulative 300bps worth of rate cuts year-to-date. Looking ahead, inflation is expected to remain historically subdued, particularly due to the adverse impact of lockdown restrictions on the labour market. Retail sales volumes plunged by 12% y/y in May, from an already depressed -50.4% in April at the height of lockdown restrictions.
The release of the South African Reserve Bank's Quarterly Bulletin confirmed our expectations of a deterioration in economic conditions and households' financial positions. We expect household financial positions to deteriorate even further as stringent lockdown measures continue to adversely impact households' financial positions. In line with our expectations inflation printed at 2.1% y/y in May and the producer price index for final manufactured goods slowed to 0.4% y/y in May.
Market activity plummeted to 3.4 points in 2Q20, from 6.4 in 1Q20, prior to the lockdown according to the FNB Estate Agents Survey. The slowdown in activity was experienced across all price segments, although agents in the affordable market reported relatively better activity. We expect both volumes and house prices to decline significantly this year.
South Africa's GDP remained in recessionary territory, falling by 2% q/q at a seasonally adjusted and annualised rate in 1Q20 after recording contractions of 1.4% and 0.8% in the two preceding quarters respectively. Credit extended to the private sector eased further to 6.3% y/y in May, from a downwardly adjusted 7.2% in April. South Africa recorded a trade surplus of R15.9 billion in May from the upwardly revised deficit of R35.9 billion in April.
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