Wednesday, October 31, 2018

ECONOMIC WEEK AHEAD: Plenty of opportunities to take the economy’s temperature

The week will be packed with data, from the purchasing managers index and unemployment numbers to vehicle sales, while S&P will weigh in with its credit rating outlook Picture: REUTERS/BRENDAN MCDERMID
Rand volatility may resurface this week, amid a slew of economic data releases and an update from S&P Global Ratings on its SA macro and sovereign credit ratings outlook.
A negative Moody’s report on Friday, issued in response to worse-than-expected fiscal metrics
announced in last week’s medium-term budget policy statement, caused the rand to weaken marginally against the dollar. Moody’s is the only ratings agency that holds an investment-grade rating for SA, but its fiscal outlook for the country is dire and it has cautioned that this could negatively affect SA.
S&P, which already has SA  on a junk rating, will update its outlook at its annual insurance seminar on Tuesday, though ratings action is only expected in November.
However, the S&P report may be overshadowed by employment numbers, which  will be released as part of the third-quarter labour force survey on Tuesday. Unemployment is expected to remain stubbornly high, as growth faltered in the second quarter when the economy contracted and tipped into recession.
FNB chief economist Mamello Matikinca said: “We are not forecasting a material deterioration”, adding that the unemployment rate of 27.2%  is expected to remain stable.
In data that will be published on Wednesday, the September trade balance is expected to reflect a modest surplus, after a surprise R8.8bn surplus in August. This would keep the year-to-date figure in the black.
Investec has forecast a surplus of R3bn. Lara Hodes, an Investec economist, said that on a trend basis the trade account averaged about R4.9bn over the past 12 months following a strong export performance due to higher commodity prices and robust global growth, which has slowed recently due to reduced trade and geopolitical tension. “We could therefore see the trade surplus reducing somewhat going forward,” Hodes said.
Another gauge of the trade environment will be the Absa purchasing managers index for October, which is expected to show little improvement when it is released on Thursday.   The index remained in negative territory in September as new sales orders  continued to decline and business activity remained subdued, indicating  constrained manufacturing output.
Figures for October vehicle sales, which will also be published on Thursday, are expected to show a mild recovery as a result of large discounts and incentives to move stock.
Also to be published this week are the September figures for private sector credit extension, due out on Monday, which may show a mild deceleration following large corporate credit growth numbers in August.
The Reserve Bank will  release its bi-annual monetary policy review at the monetary policy forum on Monday evening, where factors that have affected inflation and the rationale behind the Bank’s monetary policy stance will be discussed.

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