By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
We will resume with our routine weekly thematic next week.
This week's data was mixed and reflects continued economic weakness in the first quarter, laden with uncertainty. The impact of tight monetary policy on demand for interest rate-sensitive spending, particularly new vehicle sales volumes, was evident. Additionally, the BER Manufacturing PMI indicated continued challenges faced by the manufacturing sector. Nonetheless, the outlook from market participants is encouragingly brighter. On the electricity front, although production showed positive signs, the monthly rebound was insufficient to offset last month's malaise, suggesting that the sector's quarterly momentum may not have been sustained in the first quarter (see details overleaf).
Next week's upcoming data will provide further clues of how the economy likely played out in the first quarter.
Week in review
The Absa Purchasing Managers' Index (PMI) slipped back into contractionary territory, recording 49.2 index points in March from 51.7 points in February. The index average was flat between the last quarter of 2023 and the first quarter of this year, suggesting that manufacturing activity will remain as muted as reflected in the 4Q23 GDP data. The decline in March exhibited declines in the business activity and new sales orders indices, highlighting persistently weak demand. Positively, the supplier deliveries index has also softened, suggesting an easing of port congestion and that imported supplies are received with less delay. This unbottling of input supply should support higher inventories in future. In line with this, respondents expect improved business conditions in future, and this should bode well for employment in the sector. Unfortunately, purchasing prices are rising and should further constrain margins and foster a delay in interest rate cuts if passed on to consumers.
New vehicle sales plummeted by 11.7% y/y (5 877 units) in March, from -0.9% y/y in February. According to NAAMSA, pre-existing constraints to the business environment were amplified by the Easter Holidays in March and culminated in an eighth consecutive month of declines - the deepest since the Covid-19 related lockdowns in 2021. Four out of six sub-categories declined, except for low-volume Heavy Commercial Vehicles and Buses, which increased by 9.4% y/y and 38.6% y/y, respectively. Passenger car sales, which accounted for 60% of total volumes, declined by 15.9%, and are 8% down year-to-date, relative to the same period last year. Commercial vehicles saw a decline of 4.6% y/y but are still up by 0.6% YTD. Commercial vehicles have benefitted somewhat from the deteriorated state of SA's railway network.
Overall, the 1Q24 aggregate new vehicle sales were 5.3% below the corresponding period in 2023, reflecting the tight financial conditions and still elevated cost of living. Encouragingly, the latest PMI indicates more upbeat conditions in the next six months, likely augmented by expectations of lower interest rates and easing logistical constraints.
Electricity production surged by 4.2% y/y in February, marking a notable acceleration from the 0.8% y/y growth observed in January. Furthermore, seasonally adjusted electricity production, critical for the official calculation of quarter GDP growth, experienced a solid 1.6% m/m growth, nearly offsetting the 1.8% decline recorded in January. However, to ensure a positive contribution to 1Q24 GDP growth, the electricity sector will require sustained and robust monthly increases in March. At this stage, the risk that this sector will likely drag GDP growth is high.
Week ahead
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 2 Apr | SA | Absa/BER Manufacturing PMI | Mar | 49.2 | 51.7 |
| 2 Apr | SA | Naamsa vehicle sales % y/y | Mar | -11.7 | -0.9 |
| 4 Apr | SA | Electricity production % y/y | Feb | 4.2 | 0.8 |
| SA | Electricity production % m/m | Feb | 1.6 | -1.8 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 8 Apr | SA | Gross foreign reserves $ billion | Mar | -- | 61.7 |
| 11 Apr | SA | Mining production % y/y | Feb | -- | -3.3 |
| SA | Mining production % m/m | Feb | -- | -0.8 | |
| SA | Manufacturing production % y/y | Feb | -- | 2.6 | |
| SA | Manufacturing production % m/m | Feb | -- | 0.8 |
Financial market indicators
| Indicator | Level | 1W | 1M | 1Y |
|---|---|---|---|---|
| All Share | 75,372.98 | 1.1% | 3.8% | -1.7% |
| USD/ZAR | 18.71 | -1.2% | -1.7% | 3.7% |
| EUR/ZAR | 20.28 | -0.8% | -1.9% | 3.1% |
| GBP/ZAR | 23.65 | -1.1% | -2.1% | 5.2% |
| Platinum US$/oz. | 934.78 | 2.6% | 4.0% | -6.8% |
| Gold US$/oz. | 2,290.94 | 2.7% | 8.3% | 13.4% |
| Brent US$/oz. | 90.65 | 3.6% | 9.5% | 6.7% |
| SA 10 year bond yield | 11.29 | -1.5% | 3.0% | 8.1% |
FNB SA Economic Forecast
| Economic Indicator | 2021 | 2022 | 2023f | 2024f | 2025f | 2026f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 4.7 | 1.9 | 0.6 | 1.3 | 1.6 | 1.8 |
| Household consumption expenditure % y/y | 5.8 | 2.5 | 0.7 | 1.4 | 1.6 | 1.8 |
| Gross fixed capital formation % y/y | 0.6 | 4.8 | 4.2 | 4.4 | 4.4 | 3.8 |
| CPI (average) %y/y | 4.5 | 6.9 | 6.0 | 5.2 | 4.6 | 4.5 |
| CPI (year end) % y/y | 5.9 | 7.2 | 5.1 | 4.8 | 4.8 | 4.5 |
| Repo rate (year end) %p.a. | 3.75 | 7.00 | 8.25 | 7.50 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 7.25 | 10.50 | 11.75 | 11.00 | 10.50 | 10.50 |
| USDZAR (average) | 14.80 | 16.40 | 18.50 | 18.70 | 17.70 | 18.30 |
