Business Activity Gauges Expected This Week
This week, all eyes will be on the release of crucial economic indicators that could provide insight into the state of the economy in the second quarter.
On Monday, the Absa manufacturing purchasing managers’ index (PMI) for June will be published, followed by S&P Global’s private sector PMI on Wednesday. These indices are vital as they offer a glimpse into business activity and sentiment.
In April, both PMIs indicated an improvement in economic activity. However, the Bureau for Economic Research (BER) at Stellenbosch University reported that the May Absa PMI showed a decline, attributing it to the uncertainty ahead of the upcoming elections. This uncertainty led to a “wait-and-see” approach in demand.
It’s important to note that PMIs are not designed as sentiment indicators. Yet, a better PMI reading generally implies that underlying sentiment is more positive amid improving business conditions. Conversely, a poor PMI suggests a more pessimistic outlook.
Even though the election outcome was known throughout June, there was still a lack of clarity regarding the composition of the new government, which might have delayed the release of pent-up demand. Nevertheless, the peaceful nature of the election and the continued absence of load-shedding — with 95 days of no load-shedding by June 30 — could bode well for the economy.
Inflation Insights
On Friday, the anticipated release of the BER’s consumer inflation expectation survey for the second quarter will offer critical insights into the trajectory of inflation expectations. This survey serves as a barometer for assessing the Reserve Bank’s efforts to achieve its target of lowering inflation expectations to 4.5%.
In the first quarter of 2024, the survey revealed a slight decline in average inflation expectations among analysts, business figures, and trade union officials, dropping by 0.3 percentage points to 5.4% for the year 2024. Notably, analysts stand out with projections suggesting a potential decrease in inflation below 5%, stabilizing at 4.7% for both 2025 and 2026.
The survey outcomes will be closely scrutinized by policymakers, economists, and market participants alike, as they gauge the effectiveness of monetary policies and economic strategies in curbing inflationary pressures. The findings will likely influence future monetary policy decisions and market sentiment, shaping expectations for economic stability and growth in the coming years.
Automotive Sector Performance
Monday will mark another pivotal day with the release of new-vehicle sales data for June, anticipated to reveal a substantial year-on-year decline. The Nedbank Group Economic Unit projects a noteworthy 19.3% contraction compared to June last year, continuing the trend from May’s 14.2% decrease. This downturn is primarily influenced by elevated base effects from previous years and persistent challenges stemming from increased interest rates and strained household finances, which continue to dampen consumer spending.
The anticipated decline underscores ongoing economic pressures affecting the automotive sector, highlighting broader implications for consumer sentiment and economic recovery efforts. As stakeholders analyze the data, attention will focus on how these trends shape market dynamics and influence future business strategies and policy considerations.
Electricity and Energy Data
On Thursday, the eagerly awaited electricity data for May will be unveiled, marking a pivotal moment in energy analysis. Anticipations are high for a notable improvement compared to May 2023, when a staggering 3,429 gigawatt-hours (GWh) were lost due to load-shedding—the highest recorded during that period. In stark contrast, May 2024 saw no GWh lost to load-shedding, signaling a significant turnaround in reliability.
April’s electricity consumption already set a robust precedent with a year-on-year increase of 6.2%, underscoring growing demand trends. Experts predict that May will follow suit with another substantial surge, reflecting sustained economic activity and seasonal influences. This anticipated rise not only reaffirms recovery from past challenges but also underscores the resilience of the energy sector in adapting to dynamic demands.
As stakeholders await the impending data release, the focus remains on how these figures will influence market perceptions and policy decisions. The shift from crisis management to stability sets a promising trajectory for future energy planning and infrastructure investment, highlighting the critical role of reliable electricity supply in economic growth and societal well-being.
Reserve Bank Data
The Reserve Bank’s upcoming data is expected to show a small decline in gross reserves, dropping to $61.99 billion in June compared to $62.09 billion in May. This decrease stems from a 1.5% fall in gold reserves due to adjustments reflecting lower market prices. Foreign exchange reserves are projected to remain flat.
Despite the dip, there are positive signs. The international liquidity position, around $58.3 billion, should hold steady. Additionally, the South African Rand’s appreciation of 2.1% against the dollar strengthens the overall value of reserves when viewed in Rand terms.
This resilience suggests reserves can still cover roughly seven months of imports. While a slight decline is anticipated, the Rand’s strength indicates a potentially stable international financial position.
International Economic Indicators
On the global front, the focus will be on the US non-farm payrolls report, which is expected to show an addition of 180,000 jobs in June, down from 272,000 in May. Final PMI numbers for major countries are also due, with expectations that they will align with last week’s preliminary data. Additionally, preliminary inflation numbers from Germany and France, along with the UK house price index data, are slated for release.
The UK election on Thursday is not anticipated to cause significant market volatility, as it is widely expected that the governing Conservative Party will be replaced by the Labour Party.
As these key economic indicators are released throughout the week, businesses and investors will closely monitor the data for signs of economic stability and growth, guiding their strategies and expectations for the months ahead.
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