Politics will trump economics this week as the national and provincial elections on Wednesday will determine the economic policy environment for the next five years.
On the economic front, the focus will be on the SA Reserve Bank’s monetary policy committee (MPC), which is expected to keep the repo rate steady at 8.25% on Thursday.
The Bureau for Economic Research (BER) at Stellenbosch University noted that the MPC has emphasised upside risks to inflation and inflation expectations in recent meetings. A slightly softer tone on these issues could firm up expectations of a rate cut later this year. The BER said that while the US Federal Reserve has adopted a more hawkish stance, a lower oil price and stronger rand provide positive news for local inflation.
The inflation outlook will be informed by producer inflation rate data on Thursday. Nedbank’s economics unit expects producer inflation to accelerate to 5.1% year on year in April from 4.6% in March and 4.5% in February. The is mostly due to base effects as Nedbank forecasts that the monthly increase slowed to 0.5% in April from 1.1% in March. This moderation in the monthly figure will stem from a deceleration in food prices off a high base and a slowing in some input costs.
Data releases scheduled for this week include liquidations, international tourism, broad money supply, private sector credit extension (PSCE), and the foreign trade balance and fiscal balance for April.
Nedbank expects annual growth in PSCE to have moderated to 4.5% in April after surprising on the upside in March with a 5.2% rise after a 3.3% gain in February. The acceleration in March was driven by a jump in general loans to companies, which Nedbank believes is not likely to be repeated in April as the economic environment remains unfavourable.
Similarly, the annual growth in loans and advances (excluding investment and bills) is likely to drop to 4% from 4.7% as high interest rates, weaker household finances and fading consumer confidence continue to undermine household spending and credit demand.
Nedbank expects the foreign trade surplus to narrow to R5.8bn in April from R7.4bn in March. Exports are likely to increase slightly over the month, up by 1%, helped by less disruptive load-shedding and a modest increase in commodity prices. However, general conditions in the export market remain subdued by weak global demand and logistical challenges. Imports are estimated to have increased by about 2% due to continued machinery purchases for renewable energy projects.
Trading Economics expects the fiscal deficit to narrow to R30bn in April 2024 from R67.5bn in April 2023. In March the fiscal balance swung to a R2.1bn surplus from a R56.3bn deficit a year earlier.
Internationally, the main focus will be on the eurozone’s preliminary consumer inflation print. Trading Economics forecasts a slight rise to 2.5% year on year in May from 2.4% in April. The European Central Bank will be closely monitoring this to ensure inflation is easing as expected. The May inflation print will help determine whether a June interest rate cut is likely.
The US will release its core personal consumption expenditures (PCE) price index for April, which is the Federal Reserve’s preferred gauge of inflation. The April consumer inflation rate met expectations for the first time this year after a series of upside surprises, and there are hopes that the core PCE will be similarly in line with expectations of an easing to 2.7% year on year from 2.8%.
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