ECONOMIC WEEK AHEAD: PMI to give insight into activity in third quarter

Jul 29, 2024

Greater certainty after the election should have helped boost demand in July

​Greater certainty after the election should have helped boost demand in July   

The week ahead will be busy with month-end and start-of-month releases. The Bureau for Economic Research (BER) at Stellenbosch University said the Absa manufacturing purchasing managers’ index (PMI) for July on Thursday should give an insight into economic activity in the third quarter.

The PMI foreshadowed the surge in manufacturing activity in April and the subsequent drop in May. The PMI stayed weak in June, but no official data is available yet for June to confirm how this played out.

Respondents blamed part of the May and June weakness on a “wait and see” approach from their clients around the election. Certainty on that front should have helped with a pickup in demand.

It may have also been positive for new-vehicle sales in July, due to be released on Thursday. The BER notes that while vehicle sales are declining annually, the seasonally adjusted series suggests sales have bottomed and are now picking up, albeit slightly. Often seen as a leading indicator, this bodes well for a recovery in consumer spending.

This week also sees data releases for international tourism, the midyear population estimate, liquidations, manufacturing capacity utilisation, electricity production, money supply, credit extension, the fiscal balance and foreign trade balance.

The Nedbank Group Economic Unit forecasts that annual growth in private sector credit extension eased to 3.8% in June from 4.3% in May, reflecting generally weak economic conditions. The year-on-year growth in loans and advances (excluding investment and bills) likely moderated to 4% from 4.8%, due to some normalisation in corporate credit growth to 3.8% in June after an unexpected 6.3% jump in the previous month. However, corporate demand in general will remain relatively firm, supported by continued investment in renewable energy.

On the other hand, household credit growth will be contained by high interest rates, weaker household finances and weak consumer confidence, undermining household spending and credit demand.

Nedbank expects the foreign trade surplus to widen slightly to R22.3bn in June from R20.1bn in May. Exports likely increased by about 3% over the month, helped by less disruptive load-shedding, a modest increase in commodity prices and some improvement in logistical services and global demand. Imports will continue to be driven by purchases of machinery for renewable energy projects. However, subdued domestic demand and weak fixed investment continue to partly contain the growth rate.

Trading Economics is not as optimistic and expects a narrowing to a R16bn surplus.

The fiscal surplus should be in excess of R50bn in June from R36.6bn in June 2023 as revenue growth has recovered from poor growth in the last fiscal year. In June 2023 there was a 9.7% year-on-year decline in revenue, whereas in May 2024 there was a 6.5% year-on-year rise in revenue.

On the international front, the focus will be on growth in US nonfarm payrolls. The number is expected to cool to 185,000 in July from 206,000 in June.

Central bank monetary policy decisions will remain in focus, with the US Federal Reserve announcing its policy decision on Wednesday. Nedbank expects the US central bank to present a dovish tone that will almost confirm the first cut when it meets again on September 18.

Other central banks due to release their decisions are the Bank of Japan and central bank of Brazil, which are expected to maintain their policy rates, while the Bank of England is forecast to cut rates from 5.25% to 5%.

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