SA will get an indication as to whether the economy rebounded in the second quarter based on the latest business confidence figures as well as the first set of GDP production-side data for the period — manufacturing and mining output, as well as retail sales.
Economists are not optimistic. Though a technical relief bounce is likely, the -3.2% year-on-year first-quarter growth shock has driven home just how pervasive the weakening in economic activity has become.
The first-quarter outcome was SA’s steepest quarterly economic contraction since the global financial crisis and far exceeded the consensus expectation for a contraction of closer to 1%.
Given the strong positive correlation between growth and confidence, the main release for the week will be the second-quarter RMB/BER business confidence index (BCI) due out on Thursday.
The broad-based weakening in economic activity has pushed business confidence down to worrying lows. In the first quarter, the BCI declined by a further three points to 28 — the lowest level since the 27 index points recorded in the second quarter of 2017, and before that, the deep recession of 2009.
Though economists expect the BCI to remain constrained at low levels, they are hoping that, as with consumer confidence, the BCI may have been boosted slightly by the benign outcome of the national elections.
Manufacturing production data for April will be released by Stats SA on Tuesday and April’s mining output data on Thursday. These sectors were the main drag on overall GDP growth during the first quarter, contracting by 8.8% quarter on quarter and 10.8%, respectively.
Economists blame severe load-shedding, as well as the five-month gold mining strike at Sibanye-Stillwater, for depressing these sectors during the quarter and are hopeful that since their resolution, production will have picked up.
Investec economist Kamilla Kaplan expects mining production to have lifted to 1.4% year on year in April from -1.1% in March and from -4.1% in the first quarter. However, she thinks manufacturing production could have softened even further, to 0.9% year on year in April from 1.2% in March.
“Although electricity supply stabilised in April after extensive disruptions in the first quarter, weak demand conditions, especially domestically, will have continued to be a hindrance,” she warns.
First National Bank (FNB) chief economist Mamello Matikinca-Ngwenya is also bearish about manufacturing’s prospects, noting that the absence of further load-shedding in April may have been offset somewhat by the build-up in inventories in the first quarter.
“Mining output, on the other hand, is likely to have received additional support given the large inventory drawdown from last quarter,” she says.
Retail sales data will be released on Wednesday and are also likely to remain weak. High unemployment, rapid electricity and fuel price hikes, below-inflation wage growth and higher taxes have eroded households’ spending power.
Retail sales growth slowed to 0.2% year on year in March after a 1.4% gain in February. This is well below the long-term average of 4.4% that the retail sector has sustained since 2003.
FNB fears that retail momentum may have slowed even further in April as the tax proposals announced in the 2019/2020 national budget kicked in.
Investec expects the April retail sales figure to lift slightly to 0.8% year on year but thinks it unlikely that the sector’s performance will improve much in the second quarter given that consumers’ ability to spend remains restricted.