Some positive news for SA
STATS SA: PRODUCTION DATA STRONGER
Manufacturing increases by 2.9% in September – compared to same period last year.
Softer US inflation and stronger production data for SA last week brought some positive news to the business front after months of negative economic data.
According to the Bureau of Economic Research (BER) at Stellenbosch University, the key theme last week stemmed from the below-consensus US consumer inflation print for October.
Although inflation remains elevated, the downward surprise could encourage the US Federal Reserve (Fed) to start slowing interest rate hikes.
“Further hikes are expected, but the mere possibility of a moderation in the pace in December led to significant market movements,” Lisette IJssel de Schepper, editor of BER Weekly, says.
“Markets were also hopeful that China may finally move away from its economy-crushing zero-Covid strategy.”
Statistics SA released stronger-than-anticipated production data, while there were also some positive nondata events. SA signed loan agreements with France and Germany at the 27th UN Climate Change Conference (COP27).
Manufacturing production increased by 2.9% in September compared to September last year after an upwardly revised 1.7% increase in August.
“This was well ahead of market expectations for a 2.4% decline, which likely reflected the anticipated impact of the severe load-shedding experienced in the month.”
IJssel de Schepper says the load shedding impact was outweighed by a surge in output in the transport sector that increased by 43.2% compared to last year, contributing 3.7% points to annual growth, likely on the back of the flood-affected Toyota plant ramping up production.
“Indeed, if the transport sector is excluded, manufacturing output would have contracted by about 0.8%. Monthly output rose by a solid 4.9%, once again supported by higher transport production.
Real manufacturing output increased by 1.9% compared to the previous quarter in the third quarter, recovering from the 5.3% decline in the previous quarter.”
Production struggled on an annual basis in the mining sector, decreasing by a larger than anticipated 4.5% in September compared to September last year. This was the eighth consecutive slump in activity and follows an upwardly revised 4.5% dip in August.
The biggest drag on annual growth was iron ore (-23.1% y-o-y; -2.7% pts) and gold (-12.4% y-o-y; -2.1% pts).
However, output edged up by 0.1% month-on-month and this means that, after declining by 3.4% quarter-on-quarter in the second quarter, real mining output increased by 2.2% in the third quarter.
Germany and France will each extend €300 million concessional financing (around R10 billion in total) to SA to support its efforts to reduce its reliance on coal in the energy sector. The loans from France’s AFD and Germany’s KFW each have a maturity of 20 years, including a five-year grace period.
SA will benefit from the more favourable interest rates of the AFD loan, that will have to be paid back at an interest rate of 3.6% and the KFW loan, with an interest rate of 3%. These rates are better than those government would get on capital markets.
The loans form part of the $8.5 billion in pledges as part of the Just Energy Transition Partnership and are already reflected in SA’s gross borrowing requirement.
President Cyril Ramaphosa noted at the COP27 summit that this was only a fraction of what is needed over the next five years, as the country’s climate investment plan estimates that about $98 billion will be needed over the next five years to meet its climate goals.
However Minister of Mineral Resources and Energy Gwede Mantashe said in a parliamentary debate the renewable energy transition push should not be at the expense of coal mining communities.