Economic Week Ahead
ECONOMIC WEEK AHEAD: SA braces for more poor data
Stats SA releases mining and manufacturing figures, but these are expected to be weak
SA is braced for poor mining and manufacturing data this week, following the recent release of deteriorating unemployment and weaker manufacturing purchasing managers’ data.
Stats SA will release mining and manufacturing production and sales figures for September on Thursday. This will complete the third-quarter data for these industries, giving economists a better indication of how the economy as a whole performed during the quarter.
In the first and second quarters, real GDP contracted, tipping the economy into its first recession since the global financial crisis. The Reuters consensus is that the economy recovered to grow at 1.5% in the third quarter and will continue accelerating to 2.1% in the final quarter, taking whole-year growth to 0.8%.
But the Absa manufacturing purchasing managers’ index (PMI) for October has raised fresh concerns about the economy after it dipped for the third consecutive month to a nine-year low of just 42.4 index points, from 44.5 previously.
The market was expecting a marginal rise in the index.
“October’s PMI reading continues to be indicative of a subdued domestic economy, characterised by mounting supply-driven inflationary pressures and muted local activity,” says Investec economist Lara Hodes.
“The domestic situation is further constrained by faltering global trade conditions, which undermines export growth.”
Taken together with the rise in the unemployment rate from 27.2% to 27.5% in the third quarter, this suggests that while the economy has likely pulled out of recession, growth remains weak.
All sub-indices of the October PMI remained below the 50 mark which divides expansion from contraction. But perhaps most worryingly, says Capital Economics senior emerging market economist John Ashbourne, is that manufacturers became more pessimistic about future business conditions.
The PMI does, however, often overstate the weakness in manufacturing.
Base effects from last September’s weak reading could also help ensure that the sector registers its sixth consecutive month of annual gains and makes a positive contribution to third-quarter GDP growth.
Helpful base effects could also allow mining to produce a positive year-on-year number. However, First National Bank chief economist Mamello Matikinca-Ngwenya thinks this is unlikely as weak commodity prices suggest that demand remained lacklustre during September.
On a happier note, a slightly stronger rand and weaker international oil price should allow SA to experience a cut in the fuel price of 16c/litre on Wednesday.