Focus shifts to mining and manufacturing
Production in SA’s primary and secondary sectors during December will come under the spotlight but it is likely to be President Jacob Zuma’s state of the nation address that will feature prominently in a week of modest economic data.
Late in 2016, indications from the manufacturing sector suggested that staging a recovery in December following a mostly dismal performance during 2016 would be difficult.
Between November and December, the monthly purchasing managers’ index, which is a gauge of the sentiment of manufacturers about the country’s economic prospects, dropped 1.6 points to 46.7. The index is sponsored by Absa and compiled by the Bureau of Economic Research at Stellenbosch University.
Economists project that manufacturing production will have been constrained in December, which is usually a quieter month for activity.
Statistics SA will publish both mining and manufacturing data on Tuesday.
Economists at FNB project 0.6% growth for manufacturing, while Investec forecast 0.7% over the same period. In November 2016, manufacturing grew 1.9%.
The quarterly seasonally adjusted measure is also expected to have dropped.
Investec economist Kamilla Kaplan said for the sector to have yielded positive growth in December, “a 3.7% [between November and December] would be required to yield a positive quarter-onquarter measure”.
Fortunately, the sector is expected to have staged a recovery at the start of 2017. The January purchasing managers’ index, published last week, showed positive growth for the first time since July as sentiment lifted in response to improved domestic and global demand and higher commodity prices.
Local demand from connected industries such as transport and mining is expected to recover as the effects of drought wear off and the positive effects of improved commodity prices set in.
Mining production is expected to have further slumped 3% in December following a decline of 4.2% in November.
“The performance of mining production deteriorated in 2016 as a whole,” Kaplan said.
The sector contracted 5% in 2016 compared to growth of 4.3% in 2015. Factors that had contributed to the disappointing result included low commodity prices, lacklustre rates of world trade momentum, elevated domestic operating cost pressures, infrastructure constraints and regulatory and legislative uncertainty, she said.
The World Bank expected an 11% rise in metal prices in 2017, but precious metals to shed 7% in price, which would be damped by US dollar appreciation and higher real interest rates, Kaplan said.
FNB economist Mamello Matikinca said: “We have now just pencilled in a -3.3% growth rate for mining in 2016.”
Novare economist strategist Tumisho Grater said: “It appears very probable that mining may detract from the country’s GDP performance for the fourth quarter.”
Also on Tuesday, the Reserve Bank will provide an update on SA’s gross foreign exchange reserves and gold reserves for the period ending January. Gross foreign exchange reserves were $47.4bn in December, while net reserves was $40.8bn.
These indicators provide insight into a country’s ability to service its liabilities.
On Wednesday, the South African Chamber of Commerce (Sacci) will publish its January business confidence index, which is expected to have kept steady at 93.8 points from December.
The December index reflected the restrained business climate in 2016 with only three of the 13 subindices showing improvement, Sacci said in January.
But in a quiet week for economic data in SA, Kaplan said, “we expect to see political news filling the void”.
Focus is set to divert from statistical data to the political and economic landscape on Thursday, when the president’s state of the nation address will round off the week.