BER Weekly, 11 December 2023

THIS WEEK IN PERSPECTIVE

There were three key domestic data releases last week, with mixed outcomes. While the Q3 GDP print disappointed relative to expectations, the boost from the drop in imports filtered through to a narrowing of the current account deficit for the same quarter. The other important release was the FNB/BER Consumer Sentiment Index (CCI) for Q4 which showed that consumers are keeping tight control over their purse strings and worry about the outlook for the SA economy.

On the policy front, cabinet approved the draft Integrated Resources Plan (IRP) 2023 on Friday, while a transmission investment plan was not (yet) approved. Separately, Minister of Public Enterprises Pravin Gordhan announced that Daniel Marokane would step in as Eskom CEO in the next few months. Earlier in the week, the National Council of Provinces passed the National Health Insurance (NHI) Bill. President Cyril Ramaphosa has the option to send the bill back to parliament, refer it to the constitutional court or sign it into law as is. There is set to be significant pushback from opposition parties, business organisations and healthcare professionals.

The big event on the international data calendar was the US employment data for November out on Friday. The data came in somewhat better than expected, while the household survey showed that the unemployment rate edged down. The international section below has the details about the data. Following the release, markets pushed back expectations for the timing of the fist rate cut by the US Federal Reserve (Fed) and essentially priced out the possibility of rate cut as early as March. Also in reaction to the release, the US dollar strengthened, and US Treasury yields jumped. After some time to digest the data, the dollar gave back the gains although still ending stronger to the euro w-o-w. The rand exchange rate lost ground against the major currencies, while the JSE ALSI moved against the upward move in US and European markets and declined by 2.5% w-o-w. 

Fortunately for SA inflation dynamics, the impact of the weak(er) rand was countered by the lower oil price. The oil price declined to a five-month low mid-last week as markets pondered the possibility that OPEC+ members would not implement the cuts announced the week before as there are concerns about dissension within the cartel. Furthermore, supply from outside OPEC+ keeps rising and will be enough to offset the cuts in any case. Beyond being positive for headline inflation trends globally, a lower oil price could also provide a nice boost to growth. 

Also creating some stir during the week was the announcement (that leaked out early) by Moody’s to change its outlook on China’s sovereign credit rating to negative amid debt worries and a slower growth outlook. Chinese officials criticised the move on social media and argued that the agency does not understand the Chinese economy. Later in the week, China’s Politburo stated it would spur domestic demand and the general economic recovery in 2024. The decision-making body of the ruling communist party said that moderately stronger fiscal policy and flexible monetary policy will continuously be implemented to consolidate and enhance economic growth. The annual agenda-setting Central Economic Work Conference is expected to be held around mid-December.

Week ahead: Stats SA to publish October activity data and November price figures

Despite it being a short week, Stats SA is set to schedule a slew of data in the next few days. Following the fairly solid October electricity production data last week (see domestic section), the mining, manufacturing and domestic trade sales figures will provide more detail on how the economy fared during the first month of Q4. The consumer inflation (CPI) print for November should slow a moderation relative to October on the back of a decent fuel price decline at the start of the month – same for producer prices (PPI). Finally, the BER’s inflation expectations survey for Q4 will be released on Thursday. 

It will also be a busy week on the international front. Three of the major global central banks are scheduled to make monetary policy announcements next week, starting with the US Fed on Wednesday. The US and two European apex banks are expected to keep the policy rate unchanged, and markets will dissect the statements for signs of when the first rate cuts can be expected next year. The US Fed and ECB will also provide updated economic projections. Looking further ahead, there is speculation that the Bank of Japan (BoJ) is considering ending its ultra-loose monetary policy stance on 19 December. Comments by the BoJ governor last week propped up the yen and pushed up bond yields as markets consider whether the BoJ will end its negative interest rate policy by hiking the rate. 

On Friday, we will see a range of high-frequency data releases from China for November as well as the flash PMI figures for December for the Eurozone, UK and US.

This is the last Weekly for 2023 and the first publication for 2024 will be on Friday 12 January.

NOTE FROM THE EDITOR

The first BER Weekly was ‘published’ in 2012. The Weekly was intended as a writing exercise for junior staff members and was initially only shared internally. This changed after a few months and over the last ten years we have published more than 450 Weeklies for our clients and the general public (see the insert for the markets table from our very first public Weekly released in April 2013 – yes, that is R9.22/$ and $1.31/€). The goal of the Weekly was to provide a summary of the most important local and global economic developments, as well as a brief financial market update. During the pandemic, the Weekly transformed (and expanded) to keep clients up to date with the latest lockdown regulations, global COVID developments and, more importantly, our view on the economic implications. With many ‘family meetings’ scheduled for Sunday nights, the team often spent late nights and early mornings to ensure the Weekly was ready for publication first thing on Monday morning. Recently, the only late Sunday night changes we have seen are to the load-shedding schedule, which are (sadly) not breaking-news updates anymore. 

We have decided to shift the release of the Weekly to Friday mornings in 2024. It will still cover all the essential economic developments over the past week, but will just be released at a different time. If there are any unexpected developments over the weekend, clients can expect a Comment in their inbox to keep them updated.  

On behalf of the entire team at the BER, I would like to wish you a good festive period. Should you have any comments or suggestions for the Weekly, please contact me directly at lisette@sun.ac.za. Best, Lisette.

DOMESTIC

Real GDP contracts in Q3, while the current account deficit narrows 

According to Stats SA, real GDP contracted by 0.2% q-o-q in Q3, after expanding by a downwardly revised 0.5% (from 0.6%) in Q2. Five of the 10 industries declined in Q3 with the biggest drag coming from agriculture (down by 9.6% q-o-q and shaving off 0.3% pts). The industry faced several headwinds in Q3, including the outbreak of avian flu and the floods in the Western Cape. In terms of the expenditure-side GDP subcomponents, there was weakness in underlying domestic demand. Both household consumption and fixed investment contracted on a quarterly basis, while government consumption growth slowed. Another drag on GDP was a significant inventory drawdown. On the flip side, a huge 8.6% q-o-q contraction in imports, coupled with another slight expansion in exports, meant that net trade made a significant positive contribution to GDP. For a detailed comment, clients can click here

According to the SA Reserve Bank (SARB), the current account deficit narrowed to R19.3 billion (bn) in Q3 from an upwardly revised R185.2bn in Q2. As a ratio of GDP, the deficit narrowed to 0.3% in Q3 from 2.7% in Q2. This was much better than the consensus forecast and caused by the trade surplus widening from R22.2b in Q2 to R189.1bn in Q3, driven by weaker imports. 

In other data from the SARB, SA’s gross foreign exchange reserves increased to $61.7bn in November from $60.9bn in the previous month.  

Gloomy consumer sentiment heading into the festive season

The FNB/BER CCI edged slightly lower to -17 index points in Q4, after recovering to -16 in Q3 from a very depressed -25 in Q2. The latest reading marks the lowest festive-season consumer confidence in more than two decades, suggesting that consumers will keep tight control over their purse strings during the holiday shopping season. The slight decline in the CCI in Q4 can be ascribed to a relapse in the economic outlook sub-index of the CCI, while the household financial outlook sub-index further improved. Interestingly, consumers are more pessimistic about the outlook for the domestic economy relative to their own household’s perceived financial prospects. Meanwhile, the index measuring the appropriateness of the present time to buy durable goods (such as vehicles, furniture, etc.) increased by 1 index point to -25. Nevertheless, most consumers still feel that it is not the right time to buy big-ticket durable goods. For the press release, click here

Some better news on electricity output in October

Moving back to October data, electricity production, as measured by Stats SA, increased by 1.6% y-o-y. On a monthly basis, production was up by 3.7% in October after falling by 0.4% in the previous month. This means that the sector is off to a good start in Q4 and may add positively to GDP once again. Even with the risk that November could see a renewed drop in electricity output as Eskom’s energy availability factor (EAF) declined.

Finally, the Absa PMI had already signalled that the SA manufacturing sector was taking strain from the congested ports, but the S&P Global SA PMI now also showed a sharp lengthening of supplier delivery times suggesting that the congestion is impacting the broader private sector. Worryingly, intensified supply chain disruptions pose a downside risk to growth in the coming months.  In all, the composite PMI rose to the neutral value of 50 in November, up from 48.9 in October. The survey also reflected a marked slowdown in inflation across the private sector in November, as both input costs and output charges rose at their softest pace since December 2020. 

INTERNATIONAL

US job and wage growth reaccelerated in November

Total US nonfarm payroll employment rose by 199 000 in November, an improvement from the 150 000 jobs added in October and beating market expectations for a 180 000 increase. The biggest contribution to the growth in payrolls came from the health care (+77 000), government (+49 000) and leisure and hospitality (+40 000) sectors. The manufacturing sector also added a notable 28 000 jobs in November, mostly reflecting the conclusion of the United Autoworkers (UAW) strike over the month and workers returning to work. In contrast, the retail trade sector cut 38 000 jobs in November, likely driven by weaker consumer demand in recent months. Worrying from an inflation perspective, growth in average hourly earnings reaccelerated to 0.4% m-o-m from 0.2% in October. On an annual basis, however, wage growth slowed to 4% y-o-y from 4.1% the month before. Meanwhile, the unemployment rate decreased to 3.7%, against market expectations for remaining at 3.9%.

In other news, the ISM Services PMI rose from 51.8 in October to an above-consensus 52.7 in November. This marked an eleventh consecutive month of expanding services activity, with the improvement sparked by stronger growth in the business activity index (from 54.1 the previous month to 55.1). The employment subindex also rose modestly from 50.2 to 50.7 in November, which is consistent with the abovementioned expansion in payrolls. Of concern was that the prices subindex remained elevated, despite easing to 58.3 in November from 58.6 in October.

US consumer sentiment surged ahead of the holidays

Still in the US, the preliminary data of the University of Michigan consumer sentiment survey showed that consumer sentiment jumped to an above-consensus 69.4 in December from 61.3 in November. The improvement was spurred by a more upbeat outlook for inflation. Indeed, expectations for one-year-ahead inflation plunged to 3.1% in December from 4.5% in November. Also, inflation expectations for five years ahead fell to 2.8% from 3.2% the month before. This supports our expectation for the US Fed to keep the policy rate unchanged at next week’s FOMC meeting. That said, the committee is likely to maintain a hawkish bias, considering the reacceleration in monthly wage growth and the recent loosening in financial conditions.

China’s external trade balance improved in November

Finally, China’s trade surplus increased to $68.4bn in November from $56.5bn the month prior, beating market expectations for a deterioration to $51bn. The improvement was largely driven by a surprise 6.5% m-o-m gain in exports, while imports rose by a softer 2.4% in November. On an annual basis, China’s exports were up by 0.5% y-o-y and imports declined by 0.6%.

CONTACT US

Tel: +27 (21) 808 9777
Email: lisette@sun.ac.za 

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Please refer to the glossary on the BER website for explanations of technical terms.

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Name: BER Weekly, 11 December 2023

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