Further details on Eskom’s bailout may be the major local event in the economic news this week, as SA waits to see how much the government gives to the struggling power utility to alleviate its cash flow woes.

Finance minister Tito Mboweni said earlier in July that a special appropriation bill would be tabled in parliament on Tuesday, and it could see billions of rand allocated to Eskom as it grapples with interest payments on its R400bn debt burden.

The special appropriation bill was announced by President Cyril Ramaphosa in his state of the nation address in June. He said the bill would front-load “a significant portion” of the R230bn required by Eskom over the next 10 years.

Ratings agency Moody’s Investors Service has indicated that SA will lose its investment-grade credit rating should the government’s debt and that of Eskom rise further. Moody’s is the last of the three major global ratings agencies to hold SA’s credit rating above junk status.

The public sector borrowing requirement has risen from close to 0% of GDP in the 2000s to 3.5% of GDP, the fastest growth item in the budget, said Investec chief economist Annabel Bishop. As expenditure continues to exceed revenue, this has been funded to a substantial degree by the rapid ramp-up in debt, Bishop said. High government borrowing has contributed to a suppression of private sector fixed investment.

Also on Tuesday, the Reserve Bank will release its  leading business cycle indicator for May, having registered its seventh consecutive month of contraction in April, when it fell 0.3% year on year. The indicator, which draws on data such as vehicle sales, job advertisements, business confidence and money supply, is a gauge of where economic activity is headed in the coming six to nine months.

The indicator should show an improvement in activity, in line with more robust economic data in the second half of the year, said FNB chief economist Mamello Matikinca.

Consumer inflation should remain contained due to softer petrol prices in the month, said Matikinica. “Moreover, underlying weakness in domestic demand is also expected to have kept core inflationary pressures well contained.”

On Thursday Stats SA will release the producer price index. Farm and factory gate inflation, as measured by the annual change in the index, is expected to moderate to 5.8%, from 6.4% previously.

Article credit https://www.businesslive.co.za/bd/economy/2019-07-21-economic-week-ahead-eskoms-debt-mountain-and-local-inflation-in-focus/