Goldman Sachs Predicts Steep Inflation Slowdown in South Africa

BREAKING NEWSNovember 27, 2024 at 2:02 PM UTC

TLDR

Goldman Sachs predicts South Africa's inflation to average 3.3% in 2024, below economist forecasts and the SARB estimate, driven by a negative output gap.
Forecast suggests potential aggressive interest rate cuts, with Goldman projecting 125 basis points compared to the expected 75 basis points.
SARB recently reduced its benchmark rate to 7.75% amid slowing inflation, highlighting caution amidst ongoing uncertainty.

Goldman Sachs Group Inc. projects South Africa's inflation will average 3.3% in 2024, significantly below the 4.2% median forecast of Bloomberg-surveyed economists and the South African Reserve Bank's (SARB) 4% estimate. Andrew Matheny, a Goldman economist, attributes this to a "large negative output gap" driving disinflationary pressures.

The forecast is well below the midpoint of SARB’s 3%-6% target range and suggests a more aggressive easing of interest rates. Goldman predicts an additional 125 basis points in cuts during the current easing cycle, compared to the 75 basis points expected by most economists and SARB’s model indicating 50 basis points.

Last week, SARB reduced its benchmark rate to 7.75% following a second quarter-point cut in the cycle. Despite October’s inflation slowing to 2.8%, Governor Lesetja Kganyago emphasized caution due to ongoing uncertainty.

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Key Takeaways

Goldman Sachs’ inflation forecast reflects a contrarian stance, implying greater room for monetary easing than widely expected. The projection underscores optimism on South Africa’s economic resilience despite external risks, including the rand’s recent 4% drop against the dollar. Should Goldman’s view hold, it could signal a quicker path to rate normalization for the South African economy.

South Africa

Inflation

Economy

Interest Rates

SARB

Goldman Sachs

Finance

Macro