South Africa: Economy at a tipping point?
South Africa's economy exited technical recession in Q2 and recent data provides reason for cautious optimism. The recent recovery in agricultural output carried into in Q3, and consumer confidence is increasing on the back of moderating inflation and higher real wage growth. Adding to the good news, manufacturing output expanded in August for the first time this year. That said, this positive data, should be taken with caution. Endless political bickering constitutes is a real issue. It is the biggest stumbling block to faster GDP growth, and it continues to weigh on business confidence and stave off future investment. In September, the manufacturing PMI dipped further into contractionary territory, and business sentiment remained abysmally low despite improving from the over 30-year low recorded in August. Furthermore, political noise is set to remain elevated in the foreseeable future as the country gears up for the ANC Conference in December, when a new presidential candidate for next year’s election will be chosen.
Click image to enlarge.
The economy is expected to recover at a steady pace. Q2’s better-than-expected print led many panelists to revise up their GDP forecasts for 2017, and economic growth should edge higher in 2018 and 2019 on higher commodities prices. Nevertheless, risks are tilted to the downside. Political developments and the possibility of lower-than expected prices for commodities are weighing on growth. Our panel of 25 local and international analysts puts economic growth at 1.3% in 2018, and 1.8% in 2019.
Inflation picked up from 4.6% in July to 4.8% in August. The South African Reserve Bank stayed put in its last two-day meeting ending on 21 September over concerns of persistently high inflation. Panelists forecast that inflation will average 5.1% in 2017 and 5.3% in 2018.
Private Sector Takes a Hit
Activity in the private sector dipped further into contractionary territory in September. The Standard Bank Purchasing Managers’ Index (PMI) dropped from 49.8 in August to an almost two-year low of 48.5 in September, moving further from the six-year long-run survey average of 50.7. A reading below 50 signals deteriorating domestic business operating conditions.
September’s print marks a decline in output, new orders and employment. Private sector output dropped for the sixth consecutive month, logging its worst print in 17 months. The contraction in production reflects a fall in new orders amid weak demand. New orders went down for the third time in the past four months, and at the sharpest rate since April 2016. As output and new orders declined, firms reduced overall staffing levels at the fastest rate since April 2016. Regarding price developments, input costs and output prices rose sharply in September as firms passed on the burden of adjustment to consumers through higher prices.
FocusEconomics Consensus Forecast panelists see investment expanding 0.9% in 2018, which is down 0.1 percentage points from last month’s estimate. For 2019, the panel expects investment to increase 2.1%.
The Central Bank forecasts the economy growing 1.2% in 2018 and 1.5% in 2019. FocusEconomics Consensus Forecast panelists, meanwhile, expect the economy to expand 1.3% in 2018, which is unchanged from last month’s estimate. The panel projects growth to picking up to 1.8% in 2019.
Manufacturing Output Rebounds
According to a preliminary estimate released by the Statistical Institute, year-on-year manufacturing production rose 1.5% in August, contrasting the 1.1% drop in July. The upswing reflects a broad-based increase in key components of the index, with motor vehicles, parts and accessories, and other transport equipment recording the strongest increases. August’s print marks the best reading since November 2016.
In month-on-month terms, manufacturing production moderated from a seasonally-adjusted 1.5% expansion in July to a softer 0.3% increase in August.
Analysts expect manufacturing to expand 1.1% in 2018, which is up 0.1 percentage points from last month’s estimate. For 2019, our panel expects manufacturing to increase 1.5%.
Inflation Picking Up
In August, consumer prices increased 0.1% month-on-month, coming in below the 0.3% rise observed in July. August’s print reflects softer increases in numerous categories, including food and non-alcoholic beverages, and recreation and culture.
Inflation picked up from July’s almost two-year low of 4.6% to 4.8% in August; it remained within the Central Bank’s target range of 3.0%–6.0%, where it has been since April 2017. The steady decline in inflation since the start of this year partly reflects the results of the Reserve Bank’s tightening cycle. Meanwhile, annual average inflation edged down from 5.9% in July to 5.8%.
Core consumer prices—which exclude food, non-alcoholic beverages, energy and gasoline—rose 0.1% in August, down from the 0.5% increase observed in July. Core inflation moderated from 4.7% in July to 4.6% in August.
Our Consensus Forecast projects inflation to average 5.1% in 2018, which is unchanged from last month’s forecast. In 2019, the Consensus foresees average inflation edging up to 5.3%.
Central Bank holds repurchase rate steady in September
The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) surprised market analysts by staying put at the end of its two-day meeting culminating on 21 September. The SARB left the repurchase rate unchanged at 6.75% following a surprise cut at its July meeting.
The Bank’s decision highlights growing concerns over persistently high inflation down the road. The MPC noted that “inflation expectations of business people and trade unions remains above or close to 6% for the next two years”. These expectations are higher than the Bank’s forecasts of inflation averaging 5.30% in 2017 and 5.00% in 2018. Higher inflation expectations among price setters is troubling because they could thwart the Bank’s efforts to pursue a more expansionary monetary policy. Lowering the repurchase rate any further could stoke inflation and alter price expectations. This could have negative consequences on the economy, which exited a technical recession in Q2. However, despite the stronger-than-expected economic expansion in Q2, growth prospects remain constrained and annual growth is expected to attain 0.60% this year.
The Bank is taking a wait-and-see approach. The SARB said it would be “appropriate to maintain the current monetary policy stance at this stage, and reassess the data and the balance of risks at the next meeting”. Additionally, the Bank will take a close look at the currency, which remains vulnerable to political developments at home, bleak growth prospects and further sovereign credit rating downgrades. Further depreciation of the rand is a major challenge for the Bank since it would fuel inflation and could alter plans for additional rate cuts.
Panelists participating in the FocusEconomics Consensus Forecast expect that the repurchase rate will end 2018 at 6.43%. For 2019, our panel expects the repo rate to also end the year at 6.43%.
Date: November 8, 2017
TagsBase Metals Commodities Iran Housing Market Greece Energy Commodities Germany Oil Infographic TPP United Kingdom Argentina OPEC Euro Area United States Australia UK Spain Consensus Forecast Banking Sector Asia Ukraine Latin America Mexico Emerging Markets Brexit Colombia Japan European Union Investment IMF Canada Africa Venezuela Cryptocurrency Bitcoin Gold Major Economies South Africa Unemployment rate Inflation Economic Growth (GDP) Nordic Economies MENA G7 France precious metals Russia Healthcare Vietnam Sub-Saharan Africa Exchange Rate India Forex oil prices Company News USA Italy Precious Metals Commodities China Tunisia Eastern Europe Turkey Portugal Agricultural Commodities Eurozone Brazil Trade Commodities
Angola's economy is expected to return to growth next year, supported by improving domestic demand dynamics and ris… https://t.co/2mVYcehJIL
1 hour ago
3 hours ago
As of this month, Cameroon has been included in our aggregated regional SSA forecasts. Find out more: https://t.co/J6UhL4HDEf
3 hours ago
The UK and EU finalized negotiations on the withdrawal agreement. How could this impact the economy? Economist Oli… https://t.co/WmQUbXSSrs
4 hours ago
4 hours ago
- How and when will the next financial crisis happen? - 26 experts weigh in
- China and Africa: A partnership under the spotlight
- The conditions are ripe for a Global Financial Crisis 2.0
- Uncertainty, instability and fear haunt a generation of Argentinians
- 5 things: What to expect for Mexico's economy in 2019
- 5 things: Brazil's economic downturn and what to expect going forward
- Emerging Market Currency Crisis: Everything you need to know
- Which ASEAN countries are most exposed in the event of a U.S.-China trade war?
- 75 Top Economics Influencers to Follow
- Emerging Markets Economic Outlook 2018 and 2019
- The Faces Behind Latin America’s Key Institutions
- 2019 Economic Outlook for the Top Oil Producing Countries
- Is your cup of coffee about to get more expensive going in to 2019?
- The Economic Implications of an Aging Global Population
- Can the Wisdom of the Crowds predict the results of the 2018 World Cup?
- Railway Mania: The Largest Speculative Bubble You’ve Never Heard Of
- From Riches to Rags: Have Cryptocurrencies Crashed for Good?
- Investment looks to Latin America, but forecasts are not encouraging
- Turkey: Erdogan has cemented his grip on power - now what about the economy?
- How can Latin America’s business environment benefit from technological change?
- Mexico: A look at the past, present and future as elections yield AMLO victory
- Italy’s New Populist Government and the Eurozone: Prelude to a Crisis?
- Latin America moves toward increased integration as U.S. protectionism grows
- How can Latin America increase productivity without affecting the quality of employment?
- How will Saudi Arabia's economy benefit from lifting the women's driving ban?
- Which countries are the most prepared for the upcoming digital revolution?
- India Under Pressure from the U.S. on Trade Policy
- The Story of Steel
- Latin America is the World Leader in eCommerce Growth Despite Serious Challenges
- What the TPP means for trade in Latin America
- Elections in Russia: Analysis and Implications
- Nearly a Third of Latin Americans Have No Right to a Pension
- A Look at Healthcare Models Around the World
- The Poorest Countries in the World
- Newly-elected Chilean President Sebastian Piñera faces a myriad of challenges - economic and otherwise
- The Economic Effects of Trade Protectionism
- Regional Disparity: The Dark Side of Inequality in Latin America
- Coal: The story of the world's most abundant fossil fuel
- Gold: The Most Precious of Metals (Part 3)
- Venezuela's Electoral Conundrum
- Trump's 1st Year: 95 Analysts Surveyed on U.S. Economy
- The Latest on China and What's in Store for 2018
- An in-depth look at the Eurozone’s booming economy and the challenges that lurk in the shadows
- Increasing poverty in Latin America takes a breather thanks to improving economic dynamics
- What will be the most miserable economies in 2018?
- Is Spain doing enough to address its high youth unemployment rate?
- Has Latin America gone far enough in reducing barriers to international trade?
- Commodities Outlook: Oil, Natural Gas, Coal, Lead & Tin
- 21 experts tell us what the future looks like for cryptocurrencies and blockchain
- Turkish lira plummets to all-time low on Erdogan’s monetary feud and tense U.S.-Turkey relations
- Copper: The first metal mastered by man
- Nigerian Economy Still Treading Water Thanks to Oil Sector
- The Mercosur-EU Free Trade Agreement: Obstacles & Opportunities
- Elections in Chile: What the results could mean for the economy
- QE’s Untold Story: A Chart That Fed Correspondents Need To Investigate
- Holland’s fragile one-seat majority government targets economic growth at the expense of fiscal sustainability
- South Africa: Economy at a tipping point?
- Latin American Commodities: What’s behind the increase in demand and prices?
- Is the UK really "shackled to a corpse"?
- Spain-Catalonia: 7 economic experts weigh in on how the situation will affect the outlook
- How well is Spain's labor market doing since the crisis?
- Which countries will have the highest and lowest inflation in 2017?
- How vulnerable is Latin America to economic crises today?
- Iron ore facts and common questions answered
- The bulging economic costs of obesity
- How much investment is needed to salvage Latin America’s crumbling infrastructure?
- A Look at the Potential Impact of Brexit on the Dutch Economy
- Emerging Markets Are Kicking Into Higher Gear In 2017
- Why is foreign direct investment in Latin America falling again?
- Are Central Banks Nationalising the Economy?
- Bounty or burden? The impact of refugees on European economies is far from clear
- What’s the future of U.S.-Latin America trade relations?
- Taxes or cutbacks? Latin America's challenge of sustaining spending without causing debt to skyrocket
- Are uranium prices making a comeback?
- Taxing the Economy: Achieving a Delicate Balance
- How will Latin America’s upcoming lengthy election cycle affect the reform agenda and credit ratings?
- How will emerging market economies perform in 2017?
- Chilean Economy in Focus: Interview with Senior Economist of the Chamber of Commerce of Santiago
- CEOs Rank Top Economies for Growth Opportunities
- The Mobile Ecosystem & Latin America's Economy
- Prospects and Challenges for the Global Economy: Interview with Tim Cooper from BMI Research
- How will the Fed reduce its balance sheet & and how will the ECB end QE? - 19 economic experts weigh in
- Thoughts on "unwinding" QE from Frances Coppola
- The Fed and ECB at a crossroads: Unwinding QE
- Spain: The economy that continues to silence the critics
- Latin America: The Most Unequal Region in the World
- The History of OPEC: Has it been a Success?
- FocusEconomics Announces 2017 Analyst Forecast Awards Winners
- Latin America’s rising unemployment bucks nearly decade long trend
- Escape from the Central Bank Trap by Daniel Lacalle
- China's economic rebalancing act: What to look out for in 2017
- Driving Growth in Latin America: Challenges & Priorities
- Is the Global Economy Rebalancing?
- Commodity exporters face challenging times
- Recent Global Events Facilitate Mercosur-Pacific Alliance
- 23 economic experts weigh in: Why is productivity growth so low?
- Mexico's outlook as Trump nears 100-day mark
- Interview with Oxford Economics Senior Economist on implications of the possible outcomes of the French Presidential Election
- The anxiety of the small saver in a world of negative interest rates
- Brexit negotiations. Between Uncertainty and Urgency
- An Economic History of the EU from El Blog Salmón
- Baby Boomin': Implications of high population growth in Latin America
- Survey of International Economists Predicts a Le Pen Defeat in French Elections, Says Macron has Best Economic Plan
- Spain in a global context: developed economy with some challenges
- How much is crime costing Latin America?
- Predictions & Estimates from Economist Daniel Lacalle
- What economy will the new Dutch government inherit?
- “The data is not a true reflection of reality in India” Interview with Société Générale India Economist
- What are the prospects for Emerging Economies in 2017?
- What to expect in Asia for 2017
- Top Economics & Finance Blogs of 2017
- Latam to Resume Moderate Growth in 2017 but Important Risks Plague Outlook
- 4 Key European Elections That Will Impact the Economy in 2017
- How are security concerns and political chaos affecting Turkey’s economy?
- Global growth to edge up in 2017
- Set to breach targets again? Debt and deficit outlooks for Southern European Eurozone countries in 2016 & 2017
- What does Donald Trump mean for the U.S. economy?
- How will emerging markets perform in 2017?
- The economic impact of a break in U.S.-Philippines ties
- Trump election: Base metals surge due to infrastructure plan
- 5 updates on the Venezuelan economic crisis
- Canada: When your neighbor’s house is on fire…
- Short-term pain before long-term gain? A look at French labor reform and economic growth
- Asia: Unremarkable growth & unfulfilled promises?
- How India's latest monsoon is affecting the economy
- Innovation in Latin America: Potential Goes Untapped Due to Weak Economic Conditions
- Russian economy update in wake of OPEC deal announcement
- The Wisdom of the Crowds and the Consensus Forecast
- Can the peso predict the U.S. election results?
- There's no end in sight to the Venezuela crisis
- A Look at the European Union Political Calendar
- Survey of international economists shows uncertainty surrounding elections damaging U.S. growth prospects
- FocusEconomics partners with leading online statistics provider Statista
- China: Recent postive economic data may be papering over the cracks
- Sub-Saharan Africa's 2016 & 2017 growth rates
- The Italian Dilemma: Weak banks pose risk to already faltering domestic demand
- How much money do migrants from Latin America send home?
- The U.S.' (Not So) Mysterious Case of the Missing Men
- What to expect from the G20 economies by 2020
- The Pain in Spain: Robust GDP growth cannot mask the persistent structural deficit