SA analysts will be looking ahead to a week of sparse economic data in which gross reserves and electricity generation and consumption figures will be the main items to watch.
While power generation is likely to remain constrained given Eskom’s ongoing difficulties with maintaining a reliable supply, economists say even the demand side of the country’s power system will remain subdued given the weakness of the economy. SA’s gross and net reserves are expected to decline slightly, mainly due to the revaluation effect caused by changes in the price of gold and exchange rates.
The data week kicks off on Tuesday with the publication of Standard Bank’s purchasing managers index (PMI), which is expected to show a modest uptick in manufacturing activity in September. The Standard Bank PMI, which plays second fiddle to the Absa PMI in terms of which gauge is more closely watched by economists, is expected to tick up modestly to 50.1, from 49.9 in August, according to the median estimate in a Bloomberg survey.
PMI data measures the manufacturing sector’s health monthly by polling the purchasing managers of factories across SA on whether business condition indicators such as sales orders have increased, decreased or remained unchanged from previous months. Their answers are converted into an index with a value of 50 indicating no change in activity, a reading above 50 showing expansion and a sub-50 measure revealing a drop in activity.
The data week culminates on Thursday with the release of power generation and consumption data as well as SA’s gross and net reserves.
Gross reserves are expected to decline ever so slightly to $58.07bn in September, from $58.41bn in August, according to the median estimate of four analysts surveyed by Bloomberg. Net reserves are likely to ease to $55.27bn in September, from $55.67bn in August, a separate Bloomberg poll of five economists shows.
“Based on revaluation adjustments pertaining to the strengthening of the US dollar during the month, foreign exchange reserves would have moderated,” Investec economist Lara Hodes wrote in a client note. “However, the actual level of foreign exchange reserves is likely to differ from the forecast owing to foreign exchange swap transactions that are used for sterilisation or liquidity management purposes. Additionally, foreign exchange payments have been made on behalf of the government. These are linked to regular national government foreign debt interest payments and redemptions.”
While no survey had been conducted by Bloomberg on the annual electricity production and consumption data for August at the time of writing, Hodes said the data was likely to show the power system remains constrained from both a production and consumption point of view.
“Production and consumption of electricity remain reflective of the fragile SA economy, which has rebounded from lows experienced last year, but remains subdued,” said Hodes. “Generation capacity remains constrained by Eskom’s operational and financial challenges.”
Hodes said Eskom’s energy availability factor (EAF) is still below 70% and has averaged just 63.12% year to date. The lower EAF readings are partly due to maintenance of the state-run utility’s ageing power plant fleet.
Even so, Eskom has said it does not expect electricity demand to reach levels seen before the Covid-19 pandemic in the short to medium term, due to the lingering impact of the severe economic contraction experienced in 2020. SA’s economy contracted by a huge 6.4% in 2020 as the pandemic and subsequent lockdowns saw mines, factories, restaurants and other businesses shut for months in an attempt to contain the pandemic.
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