Goldman Sachs Group Inc. has presented a more optimistic inflation outlook for South Africa in 2025, predicting a significant slowdown to an average of 3.3% next year, which sets it apart from other economic projections, including that of the South African Reserve Bank (SARB). The central bank forecasts inflation will average 4% for the same period, while a survey of economists places the median estimate at 4.2%. Goldman Sachs’ forecast is notably more cautious compared to the SARB’s target range of 3% to 6% for inflation.
In an interview at Bloomberg’s Johannesburg offices, Andrew Matheny, an economist at Goldman Sachs, attributed the bank’s low inflation projection to what he described as a “large negative output gap,” which he believes has been, and will continue to be, disinflationary. Matheny emphasized that this gap between the country’s actual and potential economic output plays a crucial role in lowering price pressures across the economy.
Goldman’s more optimistic view on inflation is also linked to its outlook on interest rates. The bank predicts further interest rate cuts in 2025, forecasting an additional 125 basis points of easing in the current cycle, which began in September. This prediction contrasts with the consensus view of 17 economists surveyed by Bloomberg, who expect only a 75-basis-point reduction. The SARB itself has indicated it could lower rates by 50 basis points based on its staff model.
The SARB’s cautious stance was reflected last week when the central bank’s monetary policy committee (MPC) implemented its second rate cut of the easing cycle, reducing the benchmark rate to 7.75%. Governor Lesetja Kganyago, speaking after the cut, noted that inflation had slowed to 2.8% in October but highlighted ongoing uncertainty in the economic environment, prompting a cautious approach to further monetary easing.
Goldman Sachs also takes a more positive view on the South African rand. The currency has depreciated by 4% against the dollar since the US presidential election in 2020, amid concerns about the potential impact of Donald Trump’s policies on global trade. However, Goldman believes the rand’s sell-off has been overdone, as South Africa is unlikely to be directly affected by the tariff and tax promises made by the former US president.
While Goldman Sachs’ more optimistic predictions diverge from those of the SARB and other economists, the investment bank’s stance underscores the ongoing debates over South Africa’s economic recovery and future inflation dynamics.
