The week ahead is quiet in terms of the economic calendar.
Tuesday will see the release of foreign exchange reserves for October by the SA Reserve Bank. Bank data shows gross foreign exchange reserves fell to $61.1bn in September from $62bn in the previous month.
Economists at Trading Economics state this was the lowest foreign exchange reserves since February, as decreases were seen in foreign currency ($47.38bn versus $47.87bn in August), gold ($7.5bn versus $7.84bn) and special drawing rights holdings ($6.27bn versus $6.28bn).
Foreign exchange reserves are held by a country’s monetary authority and are primarily available to balance payments, influence the foreign exchange rate of its currency and maintain confidence in financial markets.
As the cost of borrowing soars and a fiscal crisis looms, leaving SA desperate for new sources of cash, its foreign exchange reserves have come under the spotlight.
On Thursday, Stats SA will publish data on mining and manufacturing production for September.
In August, the two sets of data painted a gloomy picture of prospects for overall economic expansion in the third quarter after better-than-expected 0.6% GDP growth in the three months to end-June.
Mining production fell 2.5% year on year in August, worse than market expectations of a 2% drop, after an upwardly revised 4.4% slump in the prior month, according to Stats SA.
Manufacturing production growth slowed to 1.6% year on year in August, well below the market estimate of 2.3%, after a downwardly revised 2.2% increase in July. August was the fifth consecutive month of growth in the sector, albeit the slowest in the sequence.
While the manufacturing and mining sectors showed resilience in the first half of the year — expanding in both quarters and adding to GDP growth despite some of the worst bouts of load-shedding on record — the August prints reflected a further slowdown in activity.
Both sectors reported a weak start to the third quarter, with manufacturing output falling 1.6% month on month in July while mining output was down 1.7%.
For August, Stats SA data shows monthly manufacturing production increased 0.5% while mining production increased 0.8%.
Oxford Economics senior economist Jee-A van der Linde said while it is becoming clearer that growth in manufacturing and mining moderated in the third quarter, the September numbers will ultimately show whether these sectors will detract from overall GDP in the third quarter.
Referring to the purchasing managers’ index, Van der Linde said: “What’s more, the September manufacturing PMI numbers pointed to a significant drop in activity, dragged lower by weak demand conditions, both domestically and abroad.”
FNB chief economist Mamello Matikinca-Ngwenya said mining output shrank by 2% in the three months to August, signalling a possible negative contribution to the overall GDP number from the sector. “This is consistent with our view that the economy may have failed to sustain the 0.6% quarterly GDP growth recorded in the second quarter,” she said.
Matikinca-Ngwenya said the month-on-month expansion in manufacturing production by 0.5% is not enough to reverse the 1.7% monthly decline in July.
“In the three months to August, output shrank by 0.4%, consistent with our view of a quarterly GDP growth moderation in the third quarter,” Matikinca-Ngwenya said.
“Overall, the productive sectors of the economy remain challenged by infrastructure constraints, though they are becoming more resilient to electricity shortages through private generation.”
Also concerning is slower external demand as well as rising trade barriers, she added.
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