Kicking off the economics calendar for the week is the release of Absa’s purchasing managers’ index (PMI) on Monday.
Manufacturing activity contracted for a fourth successive month in May as business conditions and sentiment continued to deteriorate amid ongoing power cuts. The PMI declined to 49.2 index points in May, from 49.8 points in April, dropping further below the 50-point mark that separates expansion from contraction.
Absa senior economist Miyelani Maluleke said the reading was the most pessimistic about the near-term outlook since the strictest phase of the country’s Covid-19 lockdown three years ago. “This suggests that the sector may once again detract from quarterly GDP growth after an expected expansion in the first quarter,” Maluleke said.
FNB economists said indications of weaker business activity during the first two months of the second quarter compared with the first quarter point to less impetus to GDP from the manufacturing sector.
“Expectations for near-term conditions were more pessimistic, likely in anticipation of intensified load-shedding during the winter months, which would compound rising cost pressures given a weaker exchange rate,” FNB chief economist Mamello Matikinca-Ngwenya said.
Reserve Bank governor Lesetja Kganyago and the Bank’s deputy governors will host the July 2023 Soweto Talk to the Reserve Bank Forum, previously the Monetary Policy Forum, on Tuesday. This will be the first physical meeting since the outbreak of Covid-19.
The forum takes place off the back of the release of the first monetary policy review for 2023. The governor and his team will further explain monetary policy, discuss factors that have affected inflation and the rationale behind the Bank’s monetary policy stance. Discussions will range from the inflation outlook to economic growth and factors that affect both. It also offers an opportunity to discuss local economic factors.
On Wednesday the S&P Global SA PMI, which tracks business trends across the private sector including mining, manufacturing, services, construction and retail, will be released. The PMI fell to 47.9 in May 2023 from 49.6 in April, pointing to the third consecutive month of contraction in the country’s private sector, and one that was the steepest since July 2021.
The construction, wholesale & retail, and services sectors all posted declines as demand was hindered by sustained load-shedding and inflationary pressures. Consequently, companies reduced their purchasing activity. “Looking ahead, firms remained optimistic about the future, amid hopes of a pickup in sales despite concerns about the electricity supply,” Matikinca-Ngwenya said.
Inflation expectations
The Bureau for Economic Research at Stellenbosch University will release its inflation expectations survey for the second quarter on Thursday. The survey for the first quarter showed a continued lift in expected inflation.
Inflation expectations for 2023 lifted to 6.3% from 6.1% previously, and 2024 expectations edged up to 5.8% from 5.6%. Two-year ahead inflation expectations settled at 5.5%, a full percentage point above the Reserve Bank’s preferred anchor. Five-year-ahead expectations remained unchanged at 5.5%.
“This indicates that price-setters still see inflation remaining above target over the policy transmission and medium-term horizon, which would be unsettling for the monetary policy committee,” Matikinca-Ngwenya said. “In line with this, we anticipate that interest rates will remain higher for longer to avoid a sustained de-anchoring of expectations and to tame structural inflation.”
Also on Thursday, data on electricity generated and available for distribution for May will be released. Electricity production declined 8.6% year on year in April, marking 19 consecutive months of annual decline.
On Friday, data on SA’s foreign exchange reserves for June will be published. In May they decreased to $61.3bn from $61.72bn in April and were below market expectations of $62.01bn.
Net foreign reserves decreased slightly to $55.05bn from $55.37bn; gold reserves fell to $7.91bn from $8bn; and special drawing rights slumped to $6.27bn from $6.36bn.
Meanwhile, the forward position, representing the central bank’s unsettled or swap transactions, went down to $0.53bn from $0.54bn in April.
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