Forex account, production data in focus
The SA Reserve Bank will publish March’s gross foreign reserves data on Monday. Gross foreign exchange reserves increased slightly to $61.65bn in February from $61.19bn in January, reflecting an increase in foreign exchange reserves to $47.25bn from $46.73bn, which was supported by a foreign currency loan of €500m received on behalf of the government.
Bank data showed gold reserves dropped to $8.18bn from $8.22bn due to the decline in the US dollar price of gold. It also shows that special drawing rights holdings fell slightly to $6.22bn from $6.24bn, partly reflecting valuation adjustments as the dollar appreciated.
Finance minister Enoch Godongwana in his budget presentation to parliament in February proposed a drawdown of R150bn from the gold and foreign exchange contingency reserve account to reduce some of SA’s debt. The account, managed by the Reserve Bank, has more than R500bn in reserves. The Gold & Foreign Exchange Contingency Reserve Defrayal Amendment Bill is now being processed by the National Council of Provinces with the aim of allowing Treasury to draw R150bn from the account before the May 29 election.
February mining production data will be published by Stats SA on Thursday. In January, mining production unexpectedly contracted by 3.3% year on year after a marginal increase of 0.3% in December 2023.
On a monthly basis output declined 0.8% in January, after declining 4.6% in the prior month, indicating a challenging start to the first quarter.
Nedbank senior economist Isaac Matshego said he expected continued weakness in mining output due to persistent load-shedding and weak commodity prices.
Manufacturing production data for February will also be published on Thursday. Output expanded 2.6% year on year in January, reflecting an acceleration from the 1.3% recorded in December.
Manufacturing activity increased 0.8% month on month, rebounding from a 1.3% contraction in December.
FNB chief economist Mamello Matikinca-Ngwenya said the effect of tight monetary policy on demand was evident.
In addition, the Bureau for Economic Research (BER) manufacturing purchasing managers’ index (PMI) “indicated continued challenges faced by the manufacturing sector”, she said.
The PMI has slipped back into contractionary territory, recording 49.2 index points in March from 51.7 points in February. The index average was flat between the last quarter of 2023 and the first quarter of this year, suggesting that manufacturing activity will remain muted.
Matikinca-Ngwenya said that on the electricity front, though production showed positive signs, the monthly rebound was insufficient to offset last month’s malaise, suggesting that the sector’s momentum may not have been sustained in the first quarter.
Stats SA showed electricity production surged 4.2% year on year in February, marking a notable acceleration from the 0.8% growth seen in January.
RMB analysts said seasonally adjusted electricity production, critical for the official calculation of quarterly GDP growth, experienced a solid 1.6% monthon-month growth, nearly offsetting the 1.8% decline recorded in January.
“However, to ensure a positive contribution to firstquarter 2024 GDP growth, the electricity sector will require sustained and robust monthly increases in March,” RMB said. “At this stage, the risk that this sector will likely drag GDP growth is high.”
Matshego said Nedbank forecast annual growth in manufacturing production of about 2.4% year on year, a moderation from 2.6% in January. “While relatively weak, growth will still be positive due to base effects and the sharp improvement in power supply relative to a year ago,” he said.
Matikinca-Ngwenya said last week’s data was mixed and reflected continued economic weakness in the first quarter.