Manufacturing and mining production data for July will be published this week providing the first indication of how these sectors are performing in the third quarter.
Manufacturing disappointed in June, falling 5.2% compared with the that of the previous June and 0.5% month on month with weak demand despite improved business operating conditions and several months without load-shedding.
The July data, which Stats SA will publish on Tuesday, are expected to show a production rebound.
The Absa purchasing managers’ index (PMI) rose notably in July, possibly a turning point for manufacturing.
The index improved by 6.7 points to 52.4 in July, probably due to stronger domestic and global demand filtering through to higher business activity and new sales orders, according to the Bureau for Economic Research (BER).
Lara Hodes, an economist at Investec, said they expected manufacturing activity for July to have risen about 0.9% year on year.
“The Absa PMI reading for July moved back into expansionary territory on a strong pick up in new orders and business activity, likely supported by ‘on-hold orders’ being fulfilled, buoying activity. Political uncertainty in particular was elevated during the second quarter, weighing on confidence and accordingly the propensity to spend. Export sales also increased notably at the beginning of the third quarter,” said Hodes.
But mining production was expected to show another decrease after performing worse than expected in June.
According to Stats SA, mining production fell 3.5% year on year in June, far worse than consensus predictions of a 0.1%-0.8% contraction. Seasonally adjusted mining production dropped 1.6% in June compared with May after month-on-month changes of 0.1% in May and 0.8% in April.
The sector did, however, perform better in the first half of the year than in the previous first half with output up 0.3% and possibly pointing to moderate recovery in the sector’s economic activity.
Investec expects mining output to have weakened 0.6% year on year in July.
“Subdued manufacturing demand globally as well as the myriad of challenges the sector continues to face domestically have weighed heavily on output. While some progress has been made on the logistics front, the still poor state of our railways and inefficiency at the ports continues to hinder commodity export potential,” said Hodes.
Other economic releases this week include the FNB-BER building confidence index and the BER inflation expectations survey results for the third quarter of 2024.
In the past two quarters, the one- and two-year-ahead inflation expectations fell, said the BER.
In the second quarter survey, the average expectation for 2024 was revised downwards to 5.3%, down from 5.4%. Similarly, expectations for 2025 and 2026 were lowered to 5% and 4.9%, from 5.3% and 5.2%, respectively.
The Reserve Bank will be looking for a further slowdown to bring expectations closer to its target of keeping inflation near the 4.5% midpoint.
The Bank’s monetary policy committee meets later this month to decide on the repo rate. It is widely expected to announce a 25 basis point rate cut after last adjusting the repo rate in May 2023, raising it by 50 bps to a 15-year high of 8.25%.
According to its most recent update, the Bank expects inflation to return to the midpoint of its 3%-6% target band in the fourth quarter of 2024. Previously, it expected price increases to dip below 4.5% only by the second quarter of 2025.
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