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This week seemed to be the calm before the storm with all eyes on the gross domestic product data for the second quarter that will be released on Tuesday. The biggest news for consumers in the coming weeks will be their long-awaited withdrawals from their retirement savings under the two-pot retirement system.
In the latest economic news, Sars announced the trade statistics for July, showing that merchandise imports grew faster than exports at the start of the third quarter. South Africa recorded a preliminary trade surplus of R17.6 billion in July, compared to the R24.2 billion surplus in June.
Jee-A van der Linde, senior economist at Oxford Economics Africa, says higher export receipts can mainly be attributed to an uptick in machinery and electronics and vegetable product exports. In turn, South Africa imported more chemical products (mainly petroleum) and machinery and electronic goods.
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However, he says, weak domestic demand remains a key reason for lower import volumes in 2024 of -5.4% for the past year. “The year-to-date merchandise trade balance is currently at a surplus of R85.3 billion, an improvement from the R30.3 billion trade surplus recorded during the corresponding period in 2023.
“However, exports are down 0.5% during the first seven months of 2024, while imports are 5.4% lower. Although supply-side constraints are easing, they continue to affect the country’s trade balances via containing exports, while lower import volumes reflect soft domestic demand.”
Van der Linde points out that there is increased optimism that more private-public partnerships could alleviate supply constraints and help boost export capacity. “Stimulating demand by unlocking new export destinations or galvanising existing ones could lift exports further.”
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says beyond an increase in the gold price, there was more good news on the commodity front for South Africa with a surge in the iron ore price.
“The price edged back above $100/MT, despite growing concern about the strength of the Chinese economy and worries that it might not achieve its 5% growth target as this kind of news would normally push down the price of the industrial commodity.”
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Official data from Statistics SA showed that factory gate prices, measured by the producer price inflation (PPI) increased at a slower pace of 4.2% in July from 4.6% in June. This was lower than expected. In addition, PPI decreased by 0.2% month-on-month after a decline of 0.3% in June. This is positive news for the inflation outlook.
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, point out that intermediate producer inflation, which measures the prices of raw materials as they enter the production process, increased to 4.2% in July from 2.3% in June, largely due to last year’s low base.
“The impact of these unfavourable base effects is expected to persist over the next few months, potentially lifting annual intermediate producer inflation further. Overall, we anticipate a continued moderation in producer inflation, supported by a less depreciated rand, stable oil prices, and statistical base effects.”
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Private Sector Credit Extension (PSCE) growth moderated to 3.5% in July, down from 4.3% in June and the FNB economists say this slowdown was primarily driven by a deceleration in corporate credit growth, which eased to 3.7% from 5.1%.
“Household credit growth also moderated slightly, from 3.3% to 3.2%. Adjusted for inflation, PSCE growth has been contracting, on average, by 1.2% since August 2023, underscoring unfavourable demand-supply dynamics amid high borrowing costs and tightened credit conditions.”
Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, says producer inflation will likely remain contained in the coming months. “The impact of drier weather conditions in February and March will still gradually filter through to food prices which, along with the normalisation in the statistical base, will cause food inflation to start edging higher.
“However, the upward pressure will partly be mitigated by lower global inflation and the higher rainfall expected in the coming season. Fuel prices remain a significant concern to the outlook. While relatively subdued global demand and ample supply will keep oil prices in check over the short term, ongoing geopolitical tension, particularly the Israel–Hamas and the Russian-Ukraine conflicts, still pose upside risks.”
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They say if the rand could maintain its resilience against the US dollar, it would help to mitigate the risks. “However, any relapse in global growth or signs of a hard landing in the US could also trigger another bout of risk-off sentiment. Other operational costs, including those relating to electricity supply and logistics, could also worsen, driving production costs and feed through into producer prices.”
They say the outlook for credit growth remains subdued, but the worst is probably over. “Lower inflation will boost disposable income, while the South African Reserve Bank (Sarb) will start cutting interest rates in September. The two-pot system will kick in on 1 September, giving households access to a portion of their retirement funds.
“These will somewhat ease the strain on household finances, boosting consumer confidence and spending, while lower interest rates will boost appetite for credit. Business confidence will also be boosted by the optimism of structural reforms, which will probably encourage the private sector to increase capital investment spending.
Van der Linde says while the latest decline in corporate sector credit was unexpected, it does not necessarily signal a waning appetite. “Therefore, we believe credit uptake should improve over the coming months.
“Optimism surrounding the government of national unity has bolstered the rand and the domestic inflation outlook has also been more benign since the start of 2024. Upcoming business confidence data for the third quarter should show a broad improvement in sentiment.”
However, Van der Linde says, credit conditions for consumers are far from ideal. “Although the environment is conducive to monetary policy easing, several risks remain. Nevertheless, we anticipate that the Sarb will cut rates in September after two of the Sarb’s six Monetary Policy Committee members recently voted for a 25 basis points cut.”
Bianca Botes, director at Citadel Global, says the rand traded largely range-bound against the dollar, following the rally at the end of last week, while winning back some ground against the euro and sterling, but battled to sustainably break below the R17.70/$ mark.
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