The upcoming week is relatively quiet in terms of economic data, with the release of the leading business cycle indicator for August on Tuesday and data on producer inflation for September on Thursday.
The SA Reserve Bank’s six-month indicator measuring economic performance surprised at the start of the third quarter, suggesting recession fears are fading even as the country continues to face acute power shortages and inefficient logistics networks.
Bank data in July showed economic activity grew 0.1% month on month after an upwardly revised 0.2% uptick the previous month, marking the second consecutive month of improvements in the business indicators after four straight months of declines. The increase was driven by six of the 10 available component time series, which outweighed decreases in the remaining four.
The positive movement in the indicator, which offers a projection of SA’s economic growth cycle for the next six to 12 months, is good news for finance minister Enoch Godongwana, who is due to table the medium-term budget policy statement (MTBPS) on November 1.
It is in line with recent upward GDP revisions by the Reserve Bank, together with the latest Thomson Reuters consensus, whose economic growth forecasts were increased from 0.4% to 0.7% for 2023, citing continued spending by households, public corporations and the government.
Investec chief economist Annabel Bishop said the lessening in negativity on an annual basis and the positive contribution of components outweighing those that are negative in SA’s leading indicator point to a brightening in economic growth in SA in 2024, at least for the first month of that year.
Bishop said less load-shedding in the second quarter lifted expectations of GDP growth for the year to about 0.5% year on year, if not slightly above, instead of the earlier expected 0.2%. “However, risks remain for 2023 as repairs and maintenance at power stations avoided in the second quarter to reduce load-shedding are expected to take place in the second half of this year,” she said.
FNB chief economist Mamello Matikinca-Ngwenya said that while this year’s economic prospects have improved relative to earlier expectations, growth remains bound below 1% and unsupportive to improvements in per capita income.
Stats SA will release data on producer inflation for September on Thursday.
Producer inflation rose to 4.3% year on year in August, above market expectations of 3.7% and ending a sequence of 12 months of deceleration, reflecting upward pressure from higher local input costs caused by increased electricity tariffs, load-shedding, and rising food and fuel prices.
Nedbank senior economist Johannes Khosa said the volatile rand remains a threat to the producer inflation outlook due to choppy global risk appetite given the uncertain global growth outlook.
“Producer prices are also affected by the threat that US interest rates could stay higher for longer, concerns about the effects of electricity shortages on domestic growth prospects and political rhetoric ahead of next year’s elections,” Khosa said.
“The El Niño weather pattern also poses upside risks for agricultural production and food prices. These could cause food and fuel prices to settle higher than anticipated.”
Investec economist Lara Hodes said they expect headline reading to have lifted to around 4.6% year on year in September from 4.3%.
Hodes said notable fuel price hikes in September of R1.71/l and R2.84/l for petrol and diesel, respectively, will have added upside pressure to the headline reading. The price of Brent crude rose notably in September, averaging about$92 a barrel.
“Moreover, while manufactured food price inflation has eased considerably, it remains subject to upside risks, including challenges relating to the Black Sea grain deal and India’s rice exports ban, the avian flu outbreak and heightened weather disturbances, notably from El Niño,” Hodes said.
Stats SA will publish August tourism accommodation numbers on Tuesday. Investec expects receipts from the tourist accommodation sector will see another notable pick on continued favourable traveller numbers.
Specifically, for the year to end-August SA’s tourist numbers climbed 63.4% from the same period in 2022.
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