Optimism over growth outlook
Manufacturing, mining likely to show recovery
DATA set for release this week will provide clues about the state of economic growth during the first quarter of the year, following a dismal contraction in the last quarter of 2016.
Mining, manufacturing production and retail sales data are all expected this week. And there are already indications that these sectors may have started the year on a firmer footing.
The rise in commodity prices – following an improvement in global demand – will lift mining production, which remains a cornerstone of the economy and contributes about 8% to the country’s GDP.
Nedbank economist Isaac Matshego said the sector would benefit from higher prices, but policy uncertainty and fixed investment remained a challenge to growth in mining.
Mining production may grow by as much as 3.7% in January compared with the same period a year ago. But the improvement is off a low base.
In December mining contracted 1.9% year-on-year. A mild recovery has been forecast for the manufacturing sector.
The Absa purchasing managers index averaged 51.7 for January and February compared with 47 in December. A reading above 50 indicates positive sentiment and possible expansion.
“On this basis there is scope for modest improvement in the actual manufacturing production data . . . versus - 2% in December,” Investec economist Kamilla Kaplan said.
Statistics SA will publish mining and manufacturing data today, followed by retail sales tomorrow.
The retail sector has struggled on the back of weak consumer confidence and low spending.
Matshego and Kaplan predict retail sales to have grown by 1.7% in January. Sales growth slowed to 1.9% in 2016, a slide from 3.3% for 2015.
Credit extension has been kept afloat by demand from corporates although fixed investment was muted during last year. Improvement in business confidence will be critical to boost the economy and keep a sovereign credit rating downgrade at bay. The RMB business confidence index compiled by the Bureau for Economic Research will be published tomorrow.
Economists will also watch an announcement from the US Federal Reserve tomorrow as it is likely to lift interest rates following a better-thanexpected improvement in US employment numbers released last Friday.
RMB currency strategist John Cairns said a more than 80% probability of a 25 basis point hike in US rates would lift the benchmark rate to 1% from 0.75% previously.
Financial market economist at ETM Analytics, Ricardo da Camara, predicted uncertainty for the rand on the back of the rate hike as investors dumped riskier emerging market assets in search of higher yield.
Higher US rates are not expected to trigger a rise in domestic rates. — TMG