BER Weekly, 19 January 2024


It was a relatively quiet week on the global data front, with the GDP figures for China and Germany probably grabbing the most attention – although both outcomes were hardly surprising (see the international section). Locally, we saw a mixed bag of high-frequency activity data for November. Still, with mining production coming out slightly better than expected and trade performing largely in line with expectations, the prints did firm up our view that the economy is likely to escape a technical recession in Q4. With little other economic data, many of the global economic headlines over the past few days have focused on the World Economic Forum (WEF) taking place in Davos. Official participation and side-line comments by monetary policy officials are being scrutinised for signals about the timing of the first interest rate cuts expected by the US and European central banks later this year. Of course, the WEF also takes place against a backdrop of swelling geopolitical tension, especially in the Middle East and in a record election year with more people than ever being able to head to the polls in 2024. Indeed, last weekend’s election in Taiwan also brought the risk of an escalation of tension between China and many other (Western) countries back to the forefront. 

On the financial markets, amid a tense global geopolitical environment, sentiment towards emerging markets soured, with the rand facing the full brunt of the risk aversion. The rand weakened past R19/$ for the first time since late October. Fortunately for SA inflation dynamics, the oil price dipped. The spot and one-month future Brent crude oil prices have so far failed to rise above $80/barrel in 2024. This is despite the issues in the Red Sea and budding tension in the Middle East, but likely due to concerns about global demand strength and record US production. Amid a slightly weaker dollar, the rand managed to close Thursday a touch stronger – although still 1.6% weaker compared to last Thursday. The JSE ALSI also performed better yesterday and snapped a three-day losing streak with industrials and banks up by most on the day. 

Week ahead: SA December inflation figures and repo rate decision 

The most important domestic data release will be the consumer inflation (CPI) figure for December, which will be released by Stats SA on Wednesday. Following a food- and fuel-driven acceleration in October’s CPI print to 5.9% y-o-y, headline inflation moderated to 5.5% in November and is set to have slowed further to 5.3% in December.  This would leave average annual inflation at 5.9% for 2023. Except for a temporary bump (driven by steep medical aid premium increases) in early 2024, inflation is set to slow through the year. Still, it will likely only reach the midpoint of the SA Reserve Bank’s (SARB) inflation target towards Q4 (this is in line with the November 2023 forecast of the SARB). This expectation, coupled with significant remaining upside inflation risks, means that we expect the SARB to keep the interest rate on hold in next week’s meeting. Following the renewed uptick in inflation expectations (click here for the BER survey), the statement may even reflect a slight hawkish tilt and signal that the bar for rate cuts remains high. For now, we expect to see the first interest rate cut in the third quarter of the year. Indeed, in a televised interview with SARB governor Lesetja Kganyago earlier this week, he said that inflation has remained more sticky than anticipated and that it would need to move closer to the target before monetary policy would be eased. 

The Bank of Japan (BoJ) and the European Central Bank (ECB) are also expected to keep rates on hold in their respective monetary policy meetings next week. The ECB largely retained its hawkish rhetoric at the World Economic Forum in Davos by suggesting that markets are pricing too aggressive rate cuts – although ECB President Christine Lagarde did say that the first cut would likely be by the European summer (i.e. our winter). In sharp contrast to the European, US and SA central banks, the next move for the BoJ is expected to be a hike to lift short-term interest rates out of negative terrain, although not at next week’s meeting. 

On the international data front, the preliminary PMI figures for Europe and the US for January will be released. It will be interesting to see whether the European PMI surveys in particular pick up on any supply chain disruptions and delays due to the shipping rerouting amid Houthi attacks in the Red Sea. We will also get the advance estimate for US GDP in Q4, with growth set to have slowed significantly from Q3. 



Annual retail sales down for a second month

According to Stats SA, real retail sales declined by 0.9% in November, following a 2.3% drop in October. This was mainly due to a drop in hardware, paint and glass sales (-5.3% y-o-y; -0.4%pts) as well as textiles and clothing (-2%, -0.4%pts). This was the first decline in clothing sales following a streak of solid annual expansions. Consumers possibly shifted spending to benefit from Black Friday specials on other retail goods. On a seasonally adjusted basis, sales were up by 0.4% m-o-m – not enough to offset a 1.4% decline in October. Indeed, we need to see very fast monthly growth (>3%) to avoid a quarterly decline in the sector – this seems unlikely. Wholesale trade sales declined for a third straight month (-4% y-o-y), but monthly growth of 5.8% almost fully offset the 5.5% contraction in October. Like wholesale, motor trade was up m-o-m (by 1%), but still contracted on an annual basis. Sales were down by 2.9% relative to November 2022 as new vehicle sales declined sharply. 

Better news for mining (and Q4 GDP)

Mining production rose by a solid 6.8% y-o-y in November, but more important for quarterly GDP dynamics was the 2.1% m-o-m uptick following a 2% increase in October. This suggests the sector may perform better than we initially expected in Q4. More than half of the growth in annual production came from PGMs (15.2% y-o-y, +3.9%pts) with coal (10.6%; 2.5%pts) and iron ore (20.1%; 2.1%pts) also making sizeable contributions. On the other hand, a steep 33.3% decline in diamond production subtracted 1.2%pts, while declines in manganese ore and gold output each shaved off 0.5%pts. 


Inflation unexpectedly reaccelerates in the Eurozone and UK; German economy contracts in 2023

The latest data releases show that consumer inflation remains sticky, and well above target levels in the Eurozone (EZ) and UK. In the EZ, annual inflation accelerated from a recent trough of 2.4% in November to 2.9% in December. However, this was mainly due to a ‘technical’ impact on the base from energy price subsidies in Germany which had lowered inflation in December 2022. Core inflation, which excludes volatile food and energy prices, moderated to 3.4% y-o-y in December, down from 5.3% as recent as August. Similarly, in the UK, annual consumer inflation accelerated to 4.0% in December, from 3.9% before. As was the case in the EZ, the uptick was, to an extent, driven by a temporary occurrence, namely an increase in the tobacco duty, which is normally a once-off event. However, of concern is that annual core inflation was unchanged at 5.1% in December, following on four consecutive months of decline. On a monthly basis, core inflation increased to 0.6% (7.4% annualised) from -0.3% before. Sticky inflation means that the ECB and Bank of England (BoE) will likely be weary to cut rates too soon, despite their struggling economies. 

Rising financing costs, high inflation and weak global demand resulted in a 0.3% contraction in the German economy in 2023. This follows a 1.8% expansion in 2022 and means that the German economy is likely the only major world economy to have contracted in 2023. There was weakness across the board, with industrial production (energy supply production) under particular pressure. From the demand side, contractions occurred in personal and government consumption and also in fixed investment.

EZ industrial production still weak, but China and US perform better

Industrial production numbers were published for various major economies this week. In line with the weak German data, industrial production for the region as a whole contracted for the ninth consecutive month in November. Output was down by 6.8% y-o-y. In contrast, US industrial production was up by 1% y-o-y in December. Growth was driven mostly by mining (up 4.3%), while utility output contracted due to mild weather conditions. In China, annual growth in industrial production growth accelerated from 6.6% in November 2023 to 6.8% in December, the fastest in nearly two years. Among some of the subcategories, car production was up by 20% compared to the year before, while mining increased by 4.7%. 

Concurring with strong industrial production growth, Q4 GDP in China expanded by 5.2% y-o-y, faster than the 4.9% growth rate recorded in Q3. For the full year, growth came in at 5.2%, which is slightly above the target of 5% set at the beginning of the year. Among the subsectors, property continued to be a drag on economic growth with the ailing sector set to remain a constraint to faster economic growth. 


Editor: Lisette IJssel de Schepper
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Name: BER Weekly, 19 January 2024