SA may trade bleak deficit for better odds

Private sector credit extension, the trade balance and the manufacturing purchasing managers’ index (PMI) will be scrutinised this week for signs that the economy may be perking up off a low base.

First off on Tuesday will be the trade balance for January.

SA typically incurs a trade deficit in January because imports increase following the seasonal decline in December.

The country posted a R19.5bn deficit in January 2016, a R23.5bn deficit in January 2015 and a R16.1bn deficit in January 2014.

The size of the deficit may be smaller this January, however, as the weakness in domestic demand has damped imports, says Investec economist Kamilla Kaplan. Equally, the apparent improvement in global demand conditions could have provided a slight lift to exports.

BNP Paribas Securities economist Jeff Schultz also believes SA will probably deliver a more positive net trade performance this year as long as industrial commodity prices hang onto their gains.

Private sector credit extension data for January will also be released on Tuesday.

The pace of credit extension has slowed from double-digit growth rates in 2015 to about 5.1% year on year in December, mainly because of the collapse in household borrowing.

There is scope for an improvement in credit conditions in 2017 if economic activity picks up as expected.

The Reuters consensus is for real GDP growth to lift modestly to 1% from a consensus estimate of 0.4% in 2016. The Treasury is more optimistic, pencilling a recovery to 1.3% and 2.0% in 2018.

“Any improvement [in private sector credit extension] is, however, still expected to be at a weak rate as households remain highly indebted, unemployment is elevated and business and consumer confidence remains depressed,” says Kaplan.

The manufacturing PMI for February will be released on Wednesday. After contracting for five consecutive months between August and December, it lifted to 50.9 index points in January, suggesting the sector may be clawing its way out of a recession.

February’s PMI is expected to have remained positive but close to the neutral 50 mark that separates expansion from contraction, signalling that while manufacturing is no longer contracting, recovery remains tentative.

“Domestic economic activity is expected to recover modestly while there is scope for export growth to strengthen further in line with the expected lift in global trade momentum,” says Kaplan. “However, the potential of more protectionist trade policy stances by the major economies poses a downside risk to the recovery in global trade growth.”

New vehicle sales will also be released on Wednesday. These fell 11.4% in 2016, reflecting the poor state of the consumer. The upward spike in sales to 3.7% in January may well have stemmed from seasonal factors and may not be repeated in the February data.