Pick-up in business confidence expected

Business confidence, the manufacturing purchasing managers’ index (PMI) and SA’s trade balance top the list of economic data releases due this week.

First up on Tuesday will be the Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) business confidence index.

The index has been volatile since 2011 and it has languished in negative territory, below 50 index points.

Seven years “is an unusually long period of relatively depressed sentiment”, says RMB chief economist Ettienne le Roux. “No wonder corporate fixed investment has been experiencing one of its own longest down cycles ever.”

Depressed business confidence reflects weak economic conditions and growing pessimism over the political environment. According to the BER’s quarterly manufacturing survey, 86% of manufacturers rate the political climate as a constraint on their businesses.

BNP Paribas economist Jeff Schultz expects the index to have climbed to 40 index points from 35.

“While some better-thanexpected high-frequency data … is likely to have prompted a modest pick-up in confidence ... the index looks very unlikely to breach back into positive territory given the significant idiosyncratic risks facing the economy at present,” he said.

On Wednesday, the Reserve Bank will release private sector credit-extension figures for October. Despite the subdued pace of household lending, corporate credit extension has proved resilient in 2017 and is likely to continue to prop up the headline figure.

Overall, private sector credit extension is likely to have ticked slightly above the 5.6% year-on-year growth rate achieved in September.

Statistics SA will release the producer price index for October on Thursday.

Schultz expects factory gate inflation to have slowed to 4.7% year on year from 5.2% year on year in September.

“Much like the October consumer inflation figures, much of this slowdown is likely to be driven by softer manufactured food prices and more favourable base effects in fuel, even with a hefty fuel price increase in the month,” Schultz explains.

On Thursday, the South African Revenue Service will release the October trade balance. Smaller trade surpluses in recent months, coupled with what is seasonally a stronger month for imports, suggest that the trade account may have slipped back into deficit in October. If so, it will be the first time in 2017 that the monthly trade account has slipped into the red. But SA is still likely to post a cumulative trade surplus for the year, which will continue to provide some support for the rand.

The Absa manufacturing PMI for October will be released on Friday. It is likely to have remained below the neutral level of 50 for the sixth consecutive month, though supportive global demand conditions may help to lift the index slightly above the 47.8 recorded in September.