Kicking off the economics calendar this week is the release of private sector credit extension data for June on Monday.
Private sector credit cooled to a three-month low as poor economic growth prospects and the tight job market continue to depress business and consumer confidence, Reserve Bank data showed. The 6.8% growth in May, from April’s 7.1%, was in line with market expectations, with the slowdown in credit demand mainly driven by a fall in both household and corporate lending growth.
This marked the 23rd consecutive month of growth in the private sector, albeit at a moderate pace since May 2022. Absa senior economist Miyelani Maluleke warned that a further slowdown in credit extension in the months ahead seems likely amid higher interest rates and subdued confidence among households and businesses.
Nedbank senior economist Johannes Khosa said that on the consumer side lower inflation during the second half of 2023 would support disposable income and help sustain spending.
“However, the accumulative impact of interest rate hikes will continue to bite,” he said. “At the same time, poor economic growth prospects and the tight job market will depress consumer confidence.”
FNB expects private sector credit to continue slowing as the effect of interest rate hikes filters through and lending standards tighten. Investec expects June’s private sector credit reading to ease to about 5.64%.
The trade balance for June will also be published on Monday. SA’s merchandise trade surplus increased more than expected in May, amounting to a surplus of R10.2bn. The data showed higher export receipts were mainly attributed to a rise in precious metals and stones, vehicles and transport equipment, and vegetable product exports.
Africa economist at Oxford Economics, Jee-A van der Linde, said the wider-than-expected trade surplus in May implies that merchandise trade should continue to be a positive contributor to SA’s balance of payments in the second quarter, after the trade surplus widened from R34.2bn in the fourth quarter of 2022 to R103bn at the start of 2023.
Infrastructure failures
“That said, widespread logistical infrastructure failures mean mineral producers are experiencing difficulty in getting their goods to local ports, which are constrained by backlogs and inefficiency,” Van der Linde said. “The knock-on effects are undermining the industry, which is already curtailed by scheduled power outages.”
He said these factors are also likely to counteract the favourable impact of a weak rand, which continues to fluctuate more than usual on domestic exporters. “Consequently, we expect monthly merchandise trade flows will remain volatile for the time being.”
Economist Lara Hodes said Investec expects the surplus on the merchandise trade account to widen modestly to about R12.2bn in June, after recording a R10.2bn surplus in May.
On Tuesday, the Absa purchasing managers’ index (PMI) for July will be released. It fell to 47.6 index points in June, from 49.2 points in May, the lowest level since mid-2021.
The reading was worse than market expectations of 48.9 and marked the fifth consecutive month of contraction in manufacturing activity and the steepest since July 2022 as business conditions deteriorated.
Maluleke said a key drag on the sector seems to come from weak demand, with the new sales orders index edging down once again as the decline in export sales deepened and domestic demand remains under pressure.
On Thursday, S&P will release the S&P Global PMI, which tracks business trends across the private sector, including in mining, manufacturing, services, construction and retail for July. It edged up to 48.7 in June from 47.9 in May, still pointing to a fourth consecutive month of contraction.
The data showed that new business intakes fell at a softer pace and firms highlighted that reduced load-shedding helped them to increase their working hours and finish some outstanding orders.
S&P Global Market Intelligence senior economist David Owen said local businesses are generally upbeat about the future as 47% of those surveyed expect their output to increase over the coming year, albeit it from a low base, while only 4% predict a downturn.
Thursday will also see the publication of data on electricity production for June. Electricity production fell 9% year on year in May, worse than the 8.6% decline in April. This marked 20 consecutive months of annual decline.
According to FNB, year-to-date electricity consumption is down by more than 1,800MW compared with the same period in 2022 and by more than 3,000MW from the same period in 2019.
FNB chief economist Mamello Matikinca-Ngwenya said that while Eskom’s electricity grid has improved in the past few weeks, its energy availability factor is below 59.3% and 62.6% for 2022 and 2021, respectively.
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