ECONOMIC WEEK AHEAD: Data to underscore SA’s bleak picture
Data this week is mostly expected to underscore an economy barely able to grow, with small to no improvement expected in some indicators, especially those that measure business confidence.
The week also opens in the wake of Friday’s decision by S&P Global to downgrade its outlook on SA government debt from stable to negative. Though S&P cut SA to subinvestment grade, or junk status, in 2017, Friday’s announcement completes a trifecta of negative comments from the three major ratings agencies, underscoring the extent of the trouble SA’s economy is in.
Two important barometers of confidence will be released this week, starting with the SA Reserve Bank’s composite leading business cycle indicator for September, out on Tuesday.
The leading indicator offers a projection of SA’s economic growth cycle for the next six to months. It has been contracting for 11 months, though market expectations are that it may tick up marginally for September.
Though the leading indicator is expected to rise, “it’s really marginal, if we look at the absolute level of the index”, said Nolan Wapenaar, co-chief investment officer at Anchor Capital.
“It’s basically going to confirm what we have already seen … there is no reason to expect that there is going to be a surge in economic activity,” he said.
The RMB/BER Business Confidence Index (BCI) for the fourth quarter of 2019 follows on Wednesday. In the third quarter, the index plunged to 21 — a 20-year low that even surpassed the negative sentiment expressed at the time of the 2008/2009 global financial crisis.
The timing of the BCI’s publication is significant, said Wapenaar, as it suggests the survey used to inform the index was probably conducted around, or just after, the dismal medium-term budget policy statement and the review by ratings agency Moody’s Investors Service that downgraded SA’s outlook to negative.
“I think that would have been the absolute low point of confidence, because we’d just been digesting some earth-shatteringly bad news,” he said. If this turns out to be the case, it is possible Q4 BCI could be even worse, he said.
Investec economist Kamilla Kaplan also expects confidence to remain “deeply depressed” for the quarter and to continue to manifest in weak investment and employment rates.
“Continuing to weigh on confidence will be the perception of slow reform of state-owned enterprises, the continued regulatory burden and, to an extent, economic policy uncertainty,” she said.
Producer price inflation for October is out on Thursday, with expectations from economists polled by Bloomberg predicting it will continue to soften to 3.1% year on year. This will largely be thanks to fuel-price-associated base effects after the relatively high price of petrol and diesel during the same period in 2018, according to FNB’s economics team, led by Mamello Matikinca-Ngwenya.
Monthly trade statistics and data on private-sector credit extension are expected on Friday. Though credit supplied to the private sector is expected to rise year on year for October, it remains “relatively modest, reflective of weak economic activity and depressed business and consumer confidence”, said Kaplan.