This coming week promises to be busy with the release of important economic data. Key data points include Consumer Confidence on Tuesday and the inflation rate on Wednesday, followed by Retail Sales on the same day. However, the main focus will be the interest rate announcement from the South African Reserve Bank’s Monetary Policy Committee (MPC) on Thursday, September 19th.

Consumer confidence is gradually improving, though it remains in negative territory, reflecting the earlier gains in Business Confidence, which indicated enhanced business sentiment for the second quarter of 2024. On the inflation front, expectations suggest a further moderation, with forecasts predicting that inflation will decrease to 4.5% for August, down from 4.6% in July. Economic demand remains low, as indicated by current import trends, highlighting that retail sales are a crucial component of overall demand. Retail sales growth was sluggish in 2024, with a notable increase of 4.1% recorded in June. For July, growth in retail sales is expected to rise by 3.4% year-on-year, which, while slightly below June’s growth rate, is still positive.

The most anticipated indicator among economists, market analysts, and investors is the MPC’s interest rate announcement on Thursday afternoon. Market expectations indicate that the SARB might lower the interest rate by 25 basis points. Such a reduction would provide much-needed relief to highly indebted consumers, who are facing rising living costs and significant interest payments that strain their budgets. A lower interest rate could also stimulate demand within the economy, fostering much-needed economic growth moving forward.

Mining production, including gold, showed mixed performance for the year up to June 2024. The output and growth of major commodities varied significantly. Coal performed well in the first two months of 2024 but faced challenges thereafter. In contrast, iron ore saw positive performance, while the Platinum Group Metals (PGM) recorded a growth of 1.6% for the year up to June.

Gold production, however, remains a major concern, as output from gold mines declined annually for all six months of 2024, despite record-high international prices driven by global uncertainty and recession fears in the U.S.

Given the mixed performances of the key categories, along with gradually improving market sentiment and electricity supply, total mining production may exhibit early signs of recovery in July.

The manufacturing sector has faced significant pressure in recent months due to electricity supply constraints and low confidence levels. However, this situation has improved with the formation of the Government of National Unity (GNU), which has boosted business confidence while Eskom’s turnaround strategy started to bear some fruit and alleviated some electricity supply issues.

Latest GDP figures indicate that manufacturing output increased in the second quarter, which is encouraging news. Despite monthly contractions in May and June 2024, there are signs of a potential turnaround as manufacturing shows tentative recovery ahead of the release of data for July 2024.

Consolidated international trade in South Africa is reflected in the current account balance, typically expressed as a ratio of economic activity (GDP) on a quarterly basis. This figure includes not only import and export data but also service payments to and from the rest of the world, as well as international income payments.

Service payments encompass transport services, travel services, telecommunications and IT services, and financial services. Income payments include dividends paid or received, interest payments, worker remittances, and royalties.

For the first quarter of 2024, the South African Reserve Bank (SARB) reported the current account balance as -1.2% of GDP. This indicates that total payments for goods and services, including service and income payments, exceeded total exports of similar items. Our forecast for the second quarter suggests a slight deterioration in this ratio to -2.2%.

The South African economy has faced significant challenges over the past few years, hindering substantial growth. Key issues include electricity supply constraints, high interest rates, reduced demand, escalating inflation, and policy uncertainty from the government. In the first quarter of 2024, the economy recorded a contraction of 0.1%, with only the agricultural sector showing notable growth at 13.5%; most other sectors either contracted or experienced minimal growth.

Looking ahead, there is hope for improved performance in the second quarter. The easing of electricity supply issues, along with a cautious increase in overall confidence within the economy, may benefit growth. This improved stability could positively impact the manufacturing and mining sectors, potentially leading to favorable growth in the second quarter of 2024.