Data set to confirm economy is struggling

ABARRAGE of data this week will reinforce the message that the economy is struggling under the weight of a global slowdown and waning domestic demand, supporting the Reserve Bank’s surprise decision to cut interest rates earlier this month.

Trade figures due tomorrow will command attention after a string of big monthly deficits which pushed the cumulative shortfall for January to May to R45,8bn — more than six times the gap of R7,5bn in the same period last year.

Few economists will forecast the balance for last month as the data from the South African Revenue Service is notoriously volatile, but nobody expects a surplus.

“The figures will show the impact which the global slowdown is having on our exports, which will be a big drag on growth this year,” according to KADD Capital economist Elize Kruger.

A slew of economists last week revised their forecasts for growth this year down to 2,5%, falling short of the Reserve Bank’s latest estimate of 2,7% and well below last year’s increase of 3,1%.

“With Europe being as weak as it is and signs that Asia is slowing, there is a risk our exports will fall even further,” says Stanlib economist Kevin Lings. “If that worsens, we will have to build it into our growth forecasts.”

Mr Lings is concerned that the ballooning trade shortfall will widen SA’s already large deficit on its current account — the country’s broadest measure of trade in goods and services. It amounted to 4,9% of gross domestic product in the first quarter of this year, up from 3,6% in the previous quarter.

So far, the shortfall has been comfortably financed by foreign purchases of domestic bonds ahead of SA’s inclusion in Citigroup’s world government bond index in October, with net inflows so far this year amounting to R62,5bn.

Mr Lings fears these purchases may soon reach “saturation” point, which means the rand will come under pressure as the trade and current account deficits widen.

The second key focus for markets will be Wednesday’s release of the purchasing managers index (PMI) by Kagiso Tiso Holdings, seen as a reliable health gauge for the manufacturing sector.

Last month the PMI lurched to its lowest level in 10 months, suggesting that the economy’s secondbiggest sector may be contracting.

Analysts believe the PMI will slip below last month’s 48,2. “There is nothing to suggest we’ll see an expansion,” Mr Lings says. “The basic story is ongoing weakness.”

Growth in manufacturing production picked up unexpectedly in May, according to the latest official data, but output was very weak in March and April.

Employment figures for the second quarter of this year may also send a dismal signal when they are released by Statistics SA tomorrow. In the first quarter, unemployment rose unexpectedly to 25,2%, driven by hefty job losses in the manufacturing and construction sectors. Economists expect that figure to have nudged higher between April and last month.

“My feeling is that we’ll see a slightly higher figure closer to 26%,” says Nedbank economist Isaac Matshego.

A monthly index released by employment services company Adcorp showed that the economy shed 82 520 formal sector jobs in May and June. But the index is often at odds with the figures compiled by Stats SA in its quarterly labour force surveys.

Credit figures due today will take a back seat to the rest of the week’s data. Consensus forecasts suggest that growth in borrowing by private companies and households was barely changed at 8,45% year on year last month, after an 8,31% increase in May.