ECONOMIC WEEK AHEAD: Business and consumer confidence expected to be weaker
No respite is in sight for business and consumer confidence indices, which continue to weaken despite improving economic prospects and the reluctance of international credit rating agencies to downgrade SA.
S&P Global Ratings is the latest agency to keep SA’s debt rating unchanged, citing in its report on Friday the government’s pursuit of “economic reform that should help boost the economy from 2019 onward”, despite chronic skills shortages and high unemployment.
President Cyril Ramaphosa announced an economic recovery and stimulus package in September, yet business confidence is expected to have continued to weaken into the fourth quarter of 2018 due to ongoing policy uncertainty, economists say. Continued global trade tension and the diverting of investment flows to the dollar from emerging markets as interest rates in developed nations rise also constrain business confidence.
The RMB business confidence index for the fourth quarter will be published on Tuesday.
FNB chief economist Mamello Matikinca says the index has remained below the 50-point neutral mark for 15 consecutive quarters. “Economic fundamentals remain dire and will likely keep confidence levels muted.”
Jeffrey Schultz, a senior economist at BNP Paribas, said subdued economic activity, poor labour market performance and weak corporate profitability are other factors to blame.
The FNB consumer confidence index to be released on Wednesday is forecast to normalise from elevated levels in the first half of the year following Ramaphosa’s appointment as president. That optimism has not yet translated into increased consumption in the economy.
Schultz said moderation in consumer confidence will “reflect higher inflation and a more uncertain economic outlook”.
On Thursday the release of factory and farmgate inflation for October, as measured by the annual change in the producer price index, is expected to mirror the rise of consumer inflation due to elevated fuel prices due to a higher international crude oil price. Oil prices have eased to below $65 per barrel in November.
Investec economist Kamilla Kaplan forecasts producer inflation of 6.3% year on year for October, from 6.2% in September.
Also on Thursday private sector credit extension for October will reflect some growth, but Kaplan expects a slowdown for the fourth quarter overall as corporate credit demand and private investment is forecast to decline somewhat. Households may also demand less credit as they are highly indebted and there is no dent in unemployment. Investec forecasts a figure of 6.5% from 6.3% in September.
Matikinca said household credit appetite has gained at a very gradual pace based on a mild rise of vehicles sales in October.
Economists are divided about SA’s trade balance for October, which will be revealed on Friday.
BNP Paribas expects a surplus of R2.5bn following September’s R3bn deficit as demand for imports remained muted and the rand weakened, which boosted exports. FNB and Investec forecast a deficit as imports rise ahead of the festive season. Historically, October’s trade balance has registered a deficit for six out of the seven past years, Matikinca said.
Kaplan said import growth may be restricted by a moderation of global prices and restrained rates of domestic consumption and investment.
The week is expected to conclude with the Central Energy Fund confirming on Friday a large petrol price cut of at least R1.50 and 92c for diesel, effective on December 5.