It was a pretty weak end to the third quarter from the production side of the economy based on September mining and manufacturing data released this week. US non-farm payroll employment rose by 250 000 in October, more than double the September increase. Eurozone retail sales were flat in September after rising 0.3% m/m in August.
Unemployment rose 0.3 pps to 27.5 in 3Q18, slightly worse than we had anticipated. The September trade balance recorded a surprise deficit of R3bn on import growth of 19.3% y/y against export growth of 11.2%. The Bank of England unanimously voted to keep the bank rate unchanged at 0.75%.
The Medium Term Budget Policy Statement (MTBPS) took centre stage this week, and its outcome was worse than anticipated. Moody's today maintained its investment-grade rating with a stable outlook, but prospects of it remaining at that level are dimming.
Minister Tito Mboweni gave his maiden budget speech last week. Relative to the Budget Review the 2018 MTPBS surprised to the downside. The government seems more driven to increase investment to boost economic growth. There seems to be an understanding that private partnerships are pivotal to attaining this objective.
Retail trade sales posted a respectable 2.5% y/y increase from 1.4% in July, despite the high base of August 2017. August mining production figures were in sharp contrast to the relatively upbeat retail numbers, contracting -9.1% y/y. Production of only two of the twelve commodity groups (manganese and coal) expanded.
The only data out this week, August manufacturing production, was overshadowed by the resignation of Mr Nhlanhla Nene as finance minister, and the swearing in of Mr Tito Mboweni as his replacement.
Having fallen 8.1 points to 43.4 in August, we had expected the ABSA manufacturing Purchasing Managers Index to have rebounded somewhat in September. It was not to be, however, as the index continued its downward trajectory, losing 0.2 index points to 43.2, September new vehicle sales reversed -1.9% y/y from a -2.5%decline in August.
The FNB / BER civil construction confidence index improved by 2pts to 17 in 3Q18. The SARB leading business cycle indicator fell -0.9% m/m in July. The Quarterly Employment Survey revealed that the economy shed 69,000 (-0.7% q/q) jobs in 2Q18. August PPI jumped to 6.3% from 6.1% in July. Credit extended to the private sector in August picked up to 6.7% y/y.
August's inflation print surprised to the downside, coming in at 4.9% y/y against our expectations of an unchanged 5.1% in July. As broadly anticipated, the SARB MPC kept the repo rate unchanged at 6.5%.
Agribusiness confidence dropped 6.9 points in 3Q18, while business confidence lost 1 point. July manufacturing production increased 2.9% y/y while retail sales expanded a modest 1.3% and mining output plunged -5.2%
The economy contracted by -0.7% q/q in 2Q18, confirming that the country entered a technical recession. The August Absa manufacturing PMI collapsed to 43.4 from 51.5.
July inflation printed at 5.1% y/y from 4.6% in June, slightly ahead of our expectation of a 5% handle. Freight payload volumes contracted -3.3% y/y in June, while food and beverage income was up only 2.8% year-to-date in the same month.
Manufacturing production was the only data of any consequence out this week, and June was another grim month for the sector, which expanded by a weak 0.7% y/y and 0.3% m/m.
Mining production volumes remained in the doldrums in May, contracting -2.6% y/y compared to a fall of -4.4% and -8.5% in the two preceding months.
South Africa registered its third consecutive trade surplus in May, which came in at R3.5bn. The budget balance for the month was disappointing, registering a deficit of -R17.7bn.
The FNB/BER Civil Confidence Index gained 3 points to register a level of 15 in 2Q2018, but the figure is still the fourth lowest print in the 21 year history of the index.
1Q18 GDP growth disappointed sharply, even against our bearish forecast of -1% q/q. Growth contracted -2.2% q/q and expanded just 0.8% y/y. It was not a great start to the second quarter for the manufacturing sector with April output ring just 1.1% y/y, and down -1.6% y/y on a seasonally adjusted basis.
April headline inflation surprised on the low side, printing at 4.5% y/y, below our expectations of 4.8%. Core inflation, which strips out food and non-alcoholic beverages, fuel and energy accelerated to 4.5% y/y from 4.1% the previous month.
24 May 2018: Following the South African Reserve Bank's decision earlier today to keep interest rates unchanged, FNB confirms that it will maintain its prime lending rate at 10% and will review its position following the next SARB MPC meeting in July.
South Africa's unemployment rate in 1Q18 was unchanged from 4Q17 at 26.7%. Of the 307,000 new entrants to the labour force, 206,000 were absorbed by the labour market and the labour force participation rate edged higher to 59.3% from 58.8% in 4Q17...
The March trade balance returned a surplus of R9.4bn, reducing the year-to-date deficit to R18.3bn from February's -R27.7bn. It was an encouraging print which exceed consensus expectations, but with our view for accelerating domestic consumption, we expect import growth to pick up in the coming months...
Highlights in the South African economy, from manufacturing production to mining output, an overview of economic activity in Sub-Saharan Africa, a snapshot of the economy in the rest of the world and economic indicators for the weeks ahead.
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