South Africa faces a critical week of economic data, with updates on GDP, business confidence and the current account, alongside a key ratings review by Moody’s, expected to shape views on policy, risk and economic performance.
The week kicks off on Monday with the Absa purchasing managers’ index (PMI) and Naamsa vehicle sales. October’s PMI dipped back below the neutral 50-point mark and analysts will be watching to see whether November brought any recovery in factory activity.
“The S&P global PMI, released midweek, followed a similar pattern,” Bureau for Economic Research (BER) chief economist Lisette IJssel de Schepper noted.
Read: Trade surplus shrinks to less than R16bn
Naamsa’s October report reflected a record-high sales volume. November is expected to hold that momentum with Nedbank economists forecasting annual growth of 15.7%, slightly down from 16% in October.
“The momentum is underpinned by easier financial conditions due to interest rate cuts, lower debt service costs and subdued prices,” Nedbank said.
On Tuesday, focus turns to third-quarter GDP data. Economists broadly expect a slowdown in growth from the previous quarter. The BER projects a 0.5% quarter-on-quarter expansion, down from 0.8% in the second quarter.
“From the expenditure side, we will be watching whether the recovery in private-sector fixed investment seen in [the second quarter] is sustained,” IJssel de Schepper said, adding this could lift overall fixed investment into positive territory quarterly, “even though year-on-year growth is still likely to remain negative”.
She noted consumer spending surprised on the upside in the second quarter.
“We expect a slowdown in [the third quarter], but household consumption growth should remain robust year on year, in contrast to investment.”
However, Nedbank and FNB forecast softer growth of 0.4% and 0.2% quarter on quarter, respectively, with Nedbank citing weaker electricity output, contracting agriculture and softer mining and manufacturing performance.
“The notoriously volatile agricultural sector presents risks on either side of the forecast,” Khumbulani Kunene, investment analyst at FNB Wealth & Investment, said.
Midweek, attention shifts to business confidence with the release of the RMB/BER business confidence index for the fourth quarter.
Sentiment edged lower in the third quarter, “but it will be interesting to see if the recent positive developments reflect in better business sentiment”, IJssel de Schepper said. These include removal from the Financial Action Task Force (FATF) greylist, a “well-received” medium-term budget policy statement and S&P Global’s recent credit ratings upgrade.
On Thursday, the Reserve Bank will publish third-quarter current account figures. The deficit is expected to narrow from 1.1% to 0.8% of GDP, thanks to resilient export performance and modest import growth, according to Nedbank.
“The non-trade deficit possibly widened as income and service payments continued to surpass income and service receipts,” the bank said.
On Friday, Moody’s Ratings is expected to announce its latest assessment of South Africa’s sovereign credit status. Moody’s presently rates the country at Ba2, two notches below investment grade, with a stable outlook.
Analysts that Business Day spoke to are split on the likely outcome. Citadel chief economist Maarten Ackerman said Moody’s may upgrade the rating by one notch and assign a positive outlook.
However, IJssel de Schepper expects the agency to affirm the Ba2 rating though she sees a possibility that the outlook could be revised from stable to positive.
“Recent fiscal and reform gains do open the door to a change in outlook from stable to positive, but the growth and investment story is not yet strong or clearly entrenched enough to justify an immediate upgrade.
“A positive outlook would allow Moody’s to acknowledge the improving direction of travel on fiscal credibility and reform traction, while still reserving a ratings move for firmer evidence that potential growth is durably lifting above 2% and that the debt ratio is set to fall rather than merely stabilise,” IJssel de Schepper said, adding that Moody’s has emphasised growth.
IJssel de Schepper noted that according to Moody’s own projections “growth is expected to rise only to around the mid-1% range by 2026, which supports a more constructive outlook as an upside risk, but not yet a full ratings upgrade”.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.