Domestic consumer demand has slowed considerably in the last two years, as the unsecured lending boom has come to a halt. Adding to consumer headwinds, petrol price increases pushed the CPI inflation rate above the South African Reserve Bank's 3% to 6% target, squeezing disposable incomes. While domestic GDP is expected to grow by just 2% this year, rand weakness seen in the first three quarters of 2013 will drive greater industrial production in the economy over the next 6 to 12 months, offsetting the slowdown in consumer expenditure and lifting the country's growth rate to above 3%. Additionally, inflation is expected to dip back into the target band over the short term, with global food and oil prices stabilising. As a result of both greater export growth and weaker import growth, the current account deficit as a proportion of GDP is expected to stay at recent levels over the short term, and decline steadily in the years ahead.

The supply of new shopping centre space in South Africa will increase to above 600,000 square meters for 2013 relative to levels of 400,000 to 500,000 square meters over the past four years. However, demand from national retailers for space in strong nodes continue to support shopping centre rentals while the demand in the industrial logistics market is firm and vacancies are low. The office market remains tough and any recovery in rentals is dependent on stronger growth in the economy and a recovery in corporate employment and activity. Office rentals remain under pressure as we continue to see new supply coming to the Johannesburg and Cape Town markets. SA REITS are currently delivering a yield of 6.4% relative to the SA 10yr bond yield of 7.6% and higher bond yields are a risk but SA REITS are expected to deliver 5% to 6% income growth per annum over the medium term and their balance sheets are strong.

The South African economy has been slowing in recent quarters, and is expected to expand by 2.4% in 2013. Demand for consumption goods has been weakening on the back of tightening unsecured credit conditions and stagnant or declining employment in the mining and manufacturing sectors, which continues to pose a threat to the growth outlook. A weaker rand will however provide a boost to these industries, as South African exports become more competitive in the global markets. Over the longer term, implementation of government industrial and social policies such as the Industrial Policy Action Plan and National Development Plan will be more critical to realizing a growth recovery. We have seen some success in this regard, as our state owned enterprises drive new infrastructure investment programmes. Further success in reforming the supply side of the economy will have major implications for South Africa's competitiveness and trade balance as we diversify our production mix towards more value added goods. However, while the trade deficit narrowed to 5.8% in the first quarter of 2013, it remains high relative to our emerging market peers and has added to inflationary pressures, as imported goods have become more expensive due to a weaker domestic currency. Achieving a more sustainable level in the trade deficit will therefore have positive implications for both the currency and the inflation outlook, which will provide a needed boost to consumer confidence and disposable incomes.

Demand from national retailers for space in strong nodes continues to support shopping centre rentals while the demand in the industrial logistics market is firm and vacancies are low. The South African office market remains tough and any recovery in rentals is dependent on stronger growth in the economy and a recovery in corporate employment and activity. Office rentals in A and B grade properties remain under pressure as we continue to see new supply coming to the Johannesburg and Cape Town markets. SA REITS are fully valued and higher bond yields are a risk but SA REITS are expected to deliver 5% to 6% income growth per annum over the medium term and their balance sheets are strong.

The National Development Plan (NDP) was the cornerstone of both the State of Nation Address (SONA) and the Budget speech this year. Key aspects of the NDP revolve around addressing major issues such as job creation, improvement of education and skills for young people and improving our economic competitiveness as a country by investing in infrastructure and raising our productivity. In the short term, the macro environment remains tough with the South African economy anticipated to deliver economic growth of 2.7% for 2013. The South African consumer has been the key driver of economic growth over the years but will face pressure from rising inflation (fuel and food costs), a moderation in real wage increases (both public and private sector) as well as access to credit pulling back due to concerns around the unsecured lending market by the major financial institutions. Infrastructure investment should gain momentum with government related spend expected to start coming through, which together with spending by the major public enterprises (Eskom & Transnet) will provide some support to economic growth in the foreseeable future. The manufacturing and mining sectors could potentially surprise on the upside. Challenges around labour, administered prices and poor productivity are well publicized and have impacted these sectors. However, the Rand has weakened significantly on the back of our weak current account and negative sentiment around the industrial action during 2012. A weaker Rand for a sustained period and stable commodity prices has the potential to surprise on the upside contribution to growth and company earnings for both the manufacturing and mining sectors. From a fiscal perspective, while our sovereign debt levels are on a rising trend, they are at manageable levels. The budget deficit remains high but with the risk of further downgrades, Treasury can be expected to be fairly tight around budgeted expenditure for the year ahead and improve recoveries around taxes.

The South African office market remains tough and any recovery in rentals will be dependent on stronger growth in the economy and the level of corporate employment and activity. Demand from national retailers for space in strong nodes continues to support shopping centre rentals while the demand in the industrial logistics market is firm and there is potential for increasing demand from exporters for industrial space as the weaker Rand will assist exporters. The SA listed property sector is currently delivering a yield of 6.8% for Property Unit Trusts and Property Loan Stocks are yielding 5.9% relative to the SA 10yr bond yield of 7.0%.