ECONOMIC WEEK AHEAD: Manufacturing production outcomes take centre stage
Manufacturing production will be in focus in the coming week with economists expecting a fourth consecutive contraction as the sector remains under pressure.
Data from Stats SA is expected to show that activity in the manufacturing sector decreased in September. According to Bloomberg, the median forecast is for a contraction of 0.8%. The sector, which contributes about 14% of GDP, shrank 1.8% in August, strained by weak consumer demand and uncertain export growth prospects.
“We anticipate that overall production volumes contracted yet again in September, as suggested by a near decade-low reading in the Absa manufacturing purchasing managers index (PMI) of 41.6 in the corresponding month. However, we do expect food and beverage production to maintain its resilience amid its relative elasticity to the economic downturn,” FNB economists said in a note.
The Absa PMI, which gauges activity in the manufacturing sector, rose to a seasonally adjusted 48.1 index points in October, data showed on Friday. This was above expectations of 41.8.
“Globally, manufacturing activity has slowed to levels last seen during the 2008/2009 global financial crisis. This would point to weak prospects for the performance of SA’s manufactured goods exports,” said Investec economist Kamilla Kaplan.
“A meaningful lift in domestic demand is not expected as business and consumer confidence are entrenched at low levels. Against the weak demand backdrop and challenging operating conditions, including interrupted electricity supply, the manufacturing sector is unlikely to make a meaningful contribution to GDP,” Kaplan said.
Consumer confidence data is scheduled to be released on Tuesday with economists expecting a slight decline in the third quarter.
The consumer confidence index, compiled by FNB and the Bureau for Economic Research at Stellenbosch University, is expected to fall to three points in the third quarter, according to a Bloomberg median forecast.
The index rose to five points in the previous quarter suggesting that consumers were slightly more optimistic about the outlook of the domestic economy as well as their household finances.
The SA Chamber of Commerce and Industry (Sacci) is due to release its business confidence index for October on Thursday. The median forecast, according to Bloomberg, is for the index to fall to 92 index points after recovering to 92.4 in September, after dropping to a 34-year low in the previous month.
The second SA investment conference starts on Tuesday as President Cyril Ramaphosa continues his drive to attract $100bn worth of investments to SA.
The market will also have to digest the decision by ratings agency Moody’s Investors Service to take its outlook on SA government debt to negative, from stable.
The decision to reduce the outlook, reflected the “material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures”, Moody’s said on Friday.
Ahead of the announcement, RMB Global Markets said that much of the risk of a negative outlook has already been priced into local assets.
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