Data likely to stress SA’s gloomy future

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Reuters

File picture: Siphiwe Sibeko

Johannesburg - Statistics coming out this week will give a strong indication on where the economic situation of South Africa is headed.

And more strikes are expected to add to the economic woes of the country.

Manufacturing figures for April will be released by Statistics SA tomorrow, while those on mining will be out on Thursday. Both are expected to be on the negative.

In the latest gross domestic product data for the first quarter of 2014, mining slumped 24.7 percent, the biggest quarterly drop since the second quarter of 1967.

Mining accounts for two-thirds of the nation’s exports.

Manufacturing, which makes up about 15 percent of the economy, fell 4.4 percent in that period.

Johannes Khosa, an economist at Nedbank, said he forecast a contraction of 5.9 percent in manufacturing because of fewer working days in April. “On a month-to-month basis, we forecast no growth, following the February and March contraction”. He predicted a minus in mining, which is “very volatile and difficult to predict”.

Manisha Morar, an economist at ETM Analytics, said she forecast a 1 percent year-on-year decrease in manufacturing.

Data released on Friday by the SA Reserve Bank (SARB) shows net gold and foreign exchange reserves eased to $44.506 billion (R470.887bn) in May from $44.857bn in April.

Gross reserves also dipped by 0.7 percent month on month to $49.209bn.

A higher reserve cushion would not only make South Africa more resilient in crisis situations but increase policy flexibility. In the 2009 global financial crisis, the economy survived outside pressure by digging into its reserves like all major emerging economies.

SARB deputy governor Daniel Mminele recently said the bank would continue to build levels of reserves which are low compared to peers when market conditions were conducive.

The Nedbank Group economic unit said the foreign exchange reserves had few implications for markets in the short term.

“The Reserve Bank faces the dilemma of striking a balance between weak growth and rising inflation. Recent economic indicators suggest that the economy remains weak, and as a result the likelihood of an early rate hike has increased, although further rand weakness and rising inflation could force some tightening later.”

Kamilla Kaplan, an economist at Investec, said: “Based on our expected case, we foresee a strengthening of the rand in the second half of the year, with scope for the rand to average below the rand/US dollar likely to average below the R10 mark in the last quarter. This would offer the SARB more opportune levels to build reserves. It should be noted though that the expected is still evenly weighted with the down case of further depreciation.”

Henk Langenhoven, the chief economist at the Steel and Engineering Industries Federation of Southern Africa, said recently confidence reflecting the immediate economic outlook in the sector was waning.

“Serious disruptions in production can make this a self-fulfilling prophecy.” - Business Report


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