Economic Wrap: Manufacturing performs poorly, MPC set to meet  

There were several key events this week, which included the release of a few industrial production statistics for May, and the election of chairs for different portfolios and standing committees.

This week the rand showed some strength as it closed at R18/$, marking a 1.5% weekly gain.

Tracey-Lee Solomon, economist at the Bureau for Economic Research (BER) says the dollar weakened due to speculation that the US Fed might cut its policy rate in September after last week’s downwardly revised nonfarm payrolls data and softer June inflation figures. However, the rand also saw modest gains against the euro and pound.

Industrial production figures weak

Solomon says the industrial production figures for May came out weaker than expected.

FNB Economics give a detailed overview of the figures. The total manufacturing production declined by 0.6% year on year in May. The decline aligns with the manufacturing Purchasing Managers’ Index (PMI) business activity index, which fell deep into contractionary territory in May. The business activity index fell further in June, indicating that output likely weakened further at the end of 2Q24.

“For the three months ending in May, output was down by 0.4%, suggesting that the manufacturing sector, pending the June data, could again drag GDP growth in 2Q24.”

Mining production also performed poorly, as the sector remained flat after rising in May. For the three months ending in May, output was down by 0.8%. The main positive contributor was chromium ore. While copper and gold were the main negative contributors.

Solomon says mining and manufacturing are arguably the most electricity-intensive sectors of the economy. Despite the stable electricity supply through the second quarter, these two sectors struggled in May after bouncing back in April.

ALSO READ: Manufacturing experts urge SA to turn more raw materials into products

Trade Unions succeed

This week saw the South African Municipal Workers Union (Samwu) signing a one-year agreement granting a 7% wage increase for their water sector workers. Solomon says his deals are expected to stabilise the crucial water sector. However, above-inflation wage increases pose challenges for the National Treasury and the South African Reserve Bank (Sarb), as they might strain the budget and contribute to inflation.  

Previously downed tools members of the National Union of Metalworkers of South Africa (Numsa) at the Ford Silverton Assembly Plant agreed to return to work. This comes after days of striking for bonuses. The agreement to return to work comes after Ford agreed to pay workers a once-off R20 000.

ALSO READ: ‘A victory for workers’ – Numsa’s Irvin Jim as Ford strike called off

Scopa chair approved by majority

Another major event this week in the business world was the election of the chair of the Standing Committee on Public Accounts (Scopa). Songezo Zibi, leader of Rise Mzansi was elected unopposed as chair, nominated by the African National Congress (ANC) and seconded by the Democratic Alliance (DA). The  Economic Freedom Fighters (EFF) objected to his election but did not propose one of their own.

Zibi’s responsibility will be leading a committee overseeing public financial accountability, thus making it important for the chair to belong to an opposition party.

Solomon mentioned that the National Health Insurance (NHI) is still going to be implemented. This is as the Minister of Health Aaron Motsoaledi expressed to Business Day he is determined to push the bill through.

ALSO READ: What you need to know about SA’s medical aid schemes and NHI

Anticipation of MPC meeting outcome

Nicky Weimar and Isaac Matshego, economists from Nedbank say they expect the Sarb Monetary Policy Committee (MPC) to maintain its holding pattern at next week’s meeting, by keeping the repo rate at 8.25%. They believe the repo rate will stay unchanged, while the Sarb waits for direction on US monetary policy and domestic inflation to gain downward traction.

 “Our assessment suggests that the risks to the inflation outlook remain relatively balanced. Some of the concerns raised at May’s MPC meeting have either not materialised or receded somewhat,” says Weimar.

They also estimate inflation will likely be sticky but steady just above the 5% level until September, before drifting lower from October onwards, ending the year at 4.9%.

ALSO READ: Less petrol pain? Calls for fuel pricing review committee intensify

Petrol Price drop on the cards?

The Brent crude oil price has also declined by more than 2%, Solomon said this is due to the surrounding potential ceasefire between Israel and Hamas. Usually, a decrease in Brent crude oil typically leads to a drop in petrol price. The petrol price for July decreased by R1.05 (unleaded 93) and by 99 cents (unleaded 99).