This week will be dominated by Budget 2.0, as finance minister Enoch Godongwana delivers a revised national budget on Wednesday, after a three-week delay due to political negotiations.
The cabinet is set to give final approval on Monday, paving the way for its presentation without further delays.
At the centre of the initial budget proposal, which was rejected on February 19, was the controversial and now-shelved plan to raise VAT by two percentage points — a move widely criticised for its potentially regressive affect on the country’s poorest households.
According to an earlier Business Day report, a 0.75 percentage point VAT hike is among the options being considered.
Other measures under discussion include withholding the employer portion of payments to the Government Employees Pension Fund (GEPF) for a year, which could raise about R53bn as a one-off measure.
Nedbank economists also highlighted the VAT increase is likely to be lower than initially proposed, with a hike to 15.5%-16% now expected instead of the previously debated 17%.
However, a lower VAT increase means the National Treasury will not realise the full R60.5bn in extra annual revenue originally projected.
To compensate for the lower VAT increase, Nedbank expects an increase in the fuel levy, after it was left unchanged in the initial budget. Other revenue adjustments are expected to be limited.
On the expenditure side, Nedbank economists noted the government will be under pressure to limit spending growth. Initially, spending was projected to increase by 5.8% per year between financial years 2025/26 and 2027/28.
The public sector wage bill remains a concern, but the Treasury is expected to contain it through staff attrition after the government reached a three-year wage agreement with public unions rather than major cuts, Nedbank said.
The Treasury may also scale back increases in social grants as the original budget projected social protection spending to rise 5.8% a year.
However, Nedbank expects the Treasury to make provisions for the social relief of distress (SRD) grants in 2026/27 and 2027/28, despite the budget allocating only R443m and R463m for those years.
“Therefore, the budget deficit target of 3.4% of GDP by financial years 2027/28 will be missed, and a wider budget shortfall over the next three years will push borrowing higher and raise debt service costs,” Nedbank economists said.
Construction sector
The FNB/Bureau for Economic Research (BER) Building Confidence index for the first quarter of 2025 on Monday will provide insights into sentiment in the construction sector.
Confidence in the building value chain remained unchanged at 40 index points in the fourth quarter of 2024. FNB economists said main contractors saw improved activity, employment and profitability, reaching a decade-high confidence level.
However, they remained concerned about weak order books and the ongoing effect of the construction mafia.
Meanwhile, in the fourth quarter subcontractors reported weaker confidence, citing a decline in residential solar installations. Architects and quantity surveyors saw some improvement in activity, but municipal delays and payment issues continued to hinder progress.
Stats SA will release January’s mining and manufacturing production data on Thursday, providing the first insight into how these sectors fared at the start of 2025.
Mining production ended 2024 on a weak note, with December output contracting by 2.4% year on year, after a 0.9% decline in November.
The sector’s gross value added (GVA) expanded 0.3% in 2024, reflecting a mild recovery from a 0.5% contraction in 2023.
Nedbank economists expected mining output to have rebounded in January, with production rising 1.3% year on year, mainly due to a low base effect.
However, they warn low global demand and weak commodity prices remain structural constraints for the sector.
Investec economist Lara Hodes expects a much weaker print, projecting a 0.2% year-on-year contraction in January.
“There is generally a month-on-month slump in January, which we projected will translate to an annual reading of around minus 0.2%, this after December’s 2.4% year-on-year contraction,” she said.
“According to the Minerals Council SA, lower non-gold commodity prices and remaining logistical bottlenecks diluted the positive impact stemming from the absence of mining load curtailment.”
Manufacturing production also contracted in December, falling 1.2% year on year after a 1.9% decline in November.
Seasonally adjusted manufacturing output dropped 2.4% month on month, extending November’s 1.3% decline.
For the full year, manufacturing’s GVA declined 0.5% in 2024, after expanding by just 0.3% in 2023 — a reflection of structural challenges and weak demand.
Lisette IJssel de Schepper, chief economist at BER, noted the Absa purchasing managers’ index remained subdued in January, “which suggests that a sharp rebound in manufacturing output is unlikely at the start of the year”.
“This week’s electricity production data showed a monthly uptick of 0.4% in January and was still significantly up (5.7%) compared to the load-shedding ridden January of 2024 — this base effect boost should fade after March.
“The Stats SA electricity production data now also includes electricity wheeling from IPPs [independent power producers], small now, but hopefully a bigger contributor over time,” she said.
Nedbank economists forecast a contraction of 1% year on year in January.
“The less severe rate of decline reflects some improvement in structural constraints, particularly a stable power supply and slightly smoother logistics.”
However, high operating costs and excess capacity remain major constraints, they said.
Hodes expects a steeper decline, projecting a 1.6% year-on-year contraction in January.
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