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It was a busy week for domestic economic data, with the good news of the rand getting stronger and inflation increasing by less than expected, but there was also bad news with the economy shedding jobs again.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says it was a decent week to essentially cap off the year for South Africa as the consumer as well as the producer price inflation prints for November came in lower than expected.
She points out that China’s announcement of more support for its economy boosted the oil price a bit, as it could translate into higher oil demand in coming years. “However, the uptick in oil prices this past week notwithstanding, it is clear that demand remains under pressure.
“This is underscored by a further downward revision to OPEC’s global oil demand outlook for 2024. OPEC+ estimates further demand growth, just less pronounced than before. This was the fifth monthly reduction in its demand projection. With positive and negative developments on the demand and supply side largely cancelling each other out, the Brent crude oil price has been hovering around $73/bbl since early November.
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She says the rand exchange rate strengthened against a generally stronger dollar and closed back below R18/$ for the first time in just under a month.
Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the rand strengthened as expectations of more US rate cuts lifted emerging market currencies. “It touched R17.69/$ on Wednesday before surrendering some gains on Thursday. On Friday morning, the local unit was trading around R17.80/$, up 1.3% for the week.”
The rand was trading at R17.89 on Friday afternoon.
In commodity markets, Matshego and Nkonki say the Brent crude oil price has remained range-bound since OPEC+ postponed its production increase until April, while gold edged higher as it recovered some of last week’s losses, while platinum was lower for the week in succession.
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Consumer inflation for November increased slightly, but still came in lower than expected at 2.9% from a four-year low of 2.8% in October, due to a slower rate of decline in transport inflation amid softer fuel price decreases. Producer deflation continued in November, falling a further 0.1% after sliding to 0.7% in October.
Nomvelo Moima, economist at the BER, says average expectations for inflation slowed to the 4.5% inflation target of the South African Reserve Bank (Sarb) for the first time since mid-2021.
“Aided by significantly lower inflation compared to the third quarter compared to survey period of the third quarter, average inflation expectations for 2024 decreased to 4.6% from 5.1% in the third quarter.
“This downward adjustment of expectations for inflation is also reflected in 2025 and 2026, mainly driven by business people and trade union officials who revised their expectations lower across all three years.”
Staying on inflation, producer price inflation (PPI) for final manufactured goods slowed to a below-consensus -0.1% y-o-y in November from -0.7% in the prior month. Lower fuel prices were once again the main contributor to the downward pressure on producer prices, Moima says.
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Matshego and Nkonki agree that Inflation surprised by not increasing as much as expected. “Most prices slowed further over the month, with significant downward pressure from falling transport costs and a further slowdown in food inflation.”
They point out that the decrease in producer price inflation (PPI) was mainly due to the coke, petroleum, chemicals, rubber and plastic products category, which fell by 8.1%, subtracting two percentage points from headline PPI.
Commenting on the inflation expectations survey, Matshego and Nkonki say analysts remained the most optimistic on inflation, forecasting it at 4.5% in 2024, 4.3% in 2026 and 4.5% in 2027. “Business inflation estimates dropped to below 5% for all three years for the first time since the first quarter of 2021. The consensus view on economic growth was broadly steady at 1% in 2024 and 1.5% in 2025.”
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Statistics SA’s Quarterly Employment Statistics showed a 1.2% decline in formal non-agriculture employment in the third quarter compared to the second quarter after a 0.4% increase in the second quarter.
Moima says the highest job losses occurred in community services (-131 000 – which were mostly temporary jobs created to run the election), followed by business services (-15 000). In contrast, trade (+19 000) and construction (+4 000) reported job growth. Disappointingly, compared to a year ago, total formal employment fell by 2.7% in the third quarter (-294 000).
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Matshego and Nkonki say high-frequency data suggest economic activity rebounded at the start of the fourth quarter.
“Mining production grew by 1.4% in October, still reasonably strong, although weaker than the 4.9% in September. Key drivers were platinum-group metals, chromium, diamonds and coal, which added 2.6 percentage points to the total.
“The mining industry is starting to gain momentum with the three-month moving average jumping to 4% from 1.2% in September. The turnaround in platinum group metals was the main contributor, growing by 8.5% after contracting in the previous three months.”
However, they say despite the upturn, structural impediments and subdued commodity prices will still limit the upside for mining.
Manufacturing production fared better than expected in October, growing by 0.8% after two months of contraction. Beverages, other chemicals and machinery contributed the most, adding 1.8 percentage points.
“In contrast, motor vehicles, parts and accessories continued its decline, but at a softer 16.6% compared to 18.9% in September. Despite improved electricity production and the anticipated recovery in domestic and global demand, we still expect the sideways trend to continue in the short- to medium-term.”
Here as well South Africa’s structural impediments will keep operating costs elevated and continue to erode competitiveness, Matshego and Nkonki say.
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Internal trade data from Statistics SA indicate that real retail trade sales increased by a solid 6.3% in October, outpacing market expectations for annual growth of 2%. Moima says this expansion was led by a double-digit rise in general dealers’ retail sales (+11.5%).
“More positive news was that real wholesale trade sales expanded by 3.4%, from a downwardly revised 7.3% decline in the previous month. This marks the first annual expansion in wholesale trade sales in almost 14 months.”
Matshego and Nkonki say the acceleration points to a recovery in consumer demand driven by lower prices, with cheaper goods and services boosting households purchasing power.
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