Violence to start showing up in data

Abusy week of economic data releases is likely to show that SA’s fragile economic recovery remains under pressure, with analysts expecting to see the first quantifiable impact of the recent unrest that rocked parts of the country as it continues to grapple with a debilitating third wave of Covid-19 infections.

On Monday the Absa purchasing managers’ index (PMI), a gauge of the health of the manufacturing sector, is expected to show a drop to 54 index points in July, down from 57.4 the previous month, according to the median estimate in a Bloomberg survey of four analysts. A reading above 50 index points indicates an expansion in manufacturing activity, while a reading below that level shows contraction.

“The manufacturing PMI can be expected to reflect the effects of the tightening of domestic restrictions in the month of July as well as of the protest action in KwaZulu-Natal and parts of Gauteng,” said Kamilla Kaplan, an economist at Investec.

“The Covid-linked restrictions will have hampered production linked to the alcohol and hospitality sectors in particular. The protest action resulted in the closure of some manufacturing plants. This, coupled with interruptions to transport, resulted in supply difficulties that will have affected production at a range of other manufacturers.”

The Absa PMI, published in conjunction with Stellenbosch University’s Bureau for Economic Research (BER), has remained above the neutral 50 level since August 2020, though the reading has vacillated between faster and slower expansion in tandem with lockdown regulations. Though SA’s economy is expected to record growth of 4% this year based on Absa’s estimates, that would still be well short of the level required to undo the 7% contraction suffered in 2020 amid Covid-19 and lockdowns.

Monday will also see the National Association of Automobile Manufacturers of SA (Naamsa) release vehicle sales data for July, with a Bloomberg survey of five analysts showing their median estimate is for growth to slow to 10.5%, down from 20.2% the previous month.

“New-vehicle sales in KwaZulu-Natal and Gauteng are also likely to have been negatively affected by the protest action, with some dealers shutting down in heavily affected areas. Sales will have been affected, with customers staying away on potential safety concerns,” said Kaplan.

SA suffered a wave of looting and economic sabotage in early July after former president Jacob Zuma was imprisoned for 15 months for contempt of court. Though an uneasy calm has returned to affected parts of SA, President Cyril Ramaphosa’s government has labelled the unrest an attempted insurrection while economists have warned that the events will dent investor confidence.

Standard Bank’s PMI survey for July will be released on Wednesday, with a Bloomberg survey showing it is likely to reveal a drop to 49, one point below the neutral 50 reading, which would indicate a contraction in manufacturing activity.

Annualised electricity production and consumption data for the month of June is scheduled for release on Thursday, which should give an indication of how well stateowned power producer Eskom is coping with its ongoing generation challenges.

While no survey was conducted by Bloomberg, the data is keenly watched as an indication of how Eskom is managing the country’s power shortage, which has lasted for more than a decade.

Friday will see the publication of SA’s foreign exchange reserves data for July, with gross and net reserves expected to tick up moderately.

Gross reserves are expected to increase to $54.6bn in July, from $54.47bn the month before, according to the median estimate of a Bloomberg survey of three analysts. Net reserves are likely to edge up to $52.2bn in July, from $51.37bn the previous month, Bloomberg’s survey indicates.

“Based solely on revaluation effects, the [SA Reserve Bank’s] gross reserves position is forecast to have increased slightly,” said Kaplan. “However, the actual level of foreign exchange reserves will likely differ from the forecast owing to liquidity management.”

NEW-VEHICLE SALES IN KWAZULU-NATAL AND GAUTENG ARE ALSO LIKELY TO HAVE BEEN NEGATIVELY AFFECTED BY THE PROTEST ACTION