GDP data set to continue first-quarter decline but rise in confidence index likely

ECONOMIC WEEK AHEAD

THE first quarter gross domestic product (GDP) data on Tuesday is the biggest data release next week, but there will also be some important data releases that will show how the economy progressed in the second quarter.

The April manufacturing and mining data on Thursday will show how the production side of the economy performed at the start of the second quarter.

The SA Chamber of Commerce and Industry ( Sacci) Business Confidence Index (BCI) on Wednesday will also help to show how economic indicators have reacted in May.

The May tractor sales and bulk export volumes have no fixed release date.

The first major data point is the first quarter GDP data.

Economists expect the data to continue the recent sequence of a quarterly decline in the first quarter after a 0.8% seasonally adjusted annualised decline in the first quarter 2016 and a 0.5% drop in the first quarter last year.

Expectations are that the first quarter contraction will be similar to the first quarter last year. On a quarter on quarter (q/q) seasonally adjusted basis, manufacturing production declined by 6.5%, while mining production contracted by 9.7%.

The second major data point is the Sacci BCI. This is a composite index of vari- ous sub-indices such as the value of the rand, import and export volumes and other indicators. The BCI fell for three consecutive months to 96.0 in April from 99.7 in January, but remains above the multiyear low of 89.6 set in August last year. A rise is anticipated in May.

Manufacturing production fell by 1.3% year-on-year (y/y) in March after growing by 0.5% y/y in February.

Statistics SA do not do a working day adjustment for the y/y comparison, so the shift of Good Friday from April last year to March this year will have reduced the number of working days by 10% to 20 from 22.

In addition, school holidays started in March and not in April, which may have reduced the working days further by two days.

The largest sector (25.15% weight), food and beverages, recovered to a 6.1% y/y gain in March from a 4.3% y/y increase in February after a 9.4% y/y rise in January.

This was largely due to a jump in “other” food products like pickles.

The listeriosis outbreak is continuing to have an impact on the production growth of processed meat, fruit and fish, which eased to 0.1% y/y in March from 1.0% y/y in February and 10.7% y/y in January.

Motor vehicle production grew by 6.4% y/y in March from a 6.3% y/y gain in February and a 5.2% y/y increase in January.

Mining production plunged by 8.4% y/y in March after a 2.0% y/y increase in February and 3.8% rise last year. The plunge is due to the shift in Easter holidays from April last year to March this year.

There should be a recovery in the April data.

Tractor sales rose by 15.3% y/y in April after surging by 41.0% y/y in March and a 8.7% gain last year.

The Agricultural Business Council (Agbiz) conference in Port Elizabeth on Thursday and Friday will help to give economists a sense of whether this increase in tractor sales is sustainable amidst the talk of expropriation without compensation. In the first four months sales were up 12.8% y/y and another y/y increase is expected in May.

Bulk exports dipped by 1.0% y/y in April to 12.1 million tons (Mt) after plunging by 23.6% y/ y in March to 10.8 Mt.

The March plunge was due to a massive 77.2% y/y slump in bulk exports, which are mostly iron ore, out of Saldanha due to a series of derailments on the Sishen to Saldanha iron ore rail link.

Excluding these, bulk exports rose by 13.3% y/y in March and increased by 12.5% y/y in April. There should be a strong y/y increase in May.