Economic data to reveal May slump
The crippling effect of the national lockdown on economic activity should continue to be evident in data released this week despite the slight easing of lockdown restrictions from May 1.
The crippling effect of the national lockdown on economic activity should continue to be evident in data released this week despite the slight easing of lockdown restrictions from May 1.
The week’s most significant indicators will be the Absa Manufacturing Purchasing Managers’ Index (PMI) and the IHS Markit SA PMI for May, which are both set for release on Monday and expected to remain in contractionary territory.
In April, SA’s first month of lockdown, the IHS Markit PMI plunged to 35.1 index points from 44.5 in March, pointing to the sharpest contraction in private-sector activity on record. Output and new orders declined to all-time lows while the job-shedding rate accelerated to its highest yet.
IHS Markit economist David Owen said the collapse in economic activity was likely “even more cataclysmic” than the index suggested as the lengthening of supplier delivery times, a sign of a busy market, artificially boosted the reading.
Due to the inadvertent boost from supplier deliveries, the Absa Manufacturing PMI rose from 45.9 in March to 46.1 in April. But the business activity subindex fell to a low of 5.1, reflecting the almost total cessation of manufacturing activity. “While some easing of restrictions from May should aid a slow recovery in coming months, a lot of manufacturing capacity will remain idle for some time,” Absa economist Miyelani Maluleke warned at the time.
BNP Paribas economist Jeff Schultz expects a modest improvement in the Absa Manufacturing PMI to 46.5 in May given that lockdown measures were loosened from May 1. However, as supplier delivery times could tighten with the gradual reopening of the economy, SA’s PMIs could fall substantially again from June, he warns.
New-vehicle sales data for May will be released by the National Automobile Manufacturers of SA (Naamsa) on Monday, and on Thursday, Stats SA will update electricity production for April.
“Given the lockdown impact on the vehicle market and general economic activity, we expect vehicle sales and electricity production to show negative growth on an annual basis, which will reinforce the expectation that [the impact on] economic growth in the second quarter will be more severe than in the first quarter,” says Alexander Forbes economist Khanyisa Phika.
In April, new-vehicle sales plunged by a startling 98.4%, with just 574 vehicles sold compared to 36,787 in April 2019. Exports dropped by 97.3%.
Schultz expects new-vehicle sales growth to have remained deep in contractionary territory in May as economic uncertainty, loss of job security and weak activity levels continue to weigh on durable-goods purchases.
“The industry is under no illusion that this is going to be a very difficult year,” says Naamsa CEO Michael Mabasa. He notes that, globally, the industry has been derailed by the Covid-19 pandemic and a significant fall in demand is expected for all the big automotive regions in 2020.
On Friday, the Reserve Bank will update its net international reserves and balance sheet position for May. Positive revaluation adjustments from a stronger gold price are likely to cause net reserves to rise by about $100m to $45.6bn.
More significant for the markets will be the Bank’s balance sheet position since it will reveal how active it has been in the SA government bond (SAGB) market, after purchases of more than R11bn in April.
“The figures should provide a better idea of the Bank’s reaction function and willingness to provide a consistent backstop to the SAGB market which, up to now, has helped compress yields in the belly of the bond curve,” explains Schultz.
He expects the Bank to buy a minimum of R60bn in SAGBs in 2020.