ECONOMIC WEEK AHEAD: Searching for Signs of Life in the Economy

Business Day

Economists will be scouring economic data for any evidence of a pickup in domestic growth but are likely to get only a mixed bag of muted results.
Among the most important releases will be the December producer price index (PPI) due out on Thursday.
Most economists expect it to mirror the improvement in consumer inflation experienced during December, owing mainly to a substantial drop in fuel prices.
FNB forecasts the PPI to moderate significantly to 6% from 6.8% in November, noting that lower food producer-price inflation should also help drive the index lower.
The trade balance for December is also scheduled for release on Thursday.
Economists are divided on whether SA’s notoriously volatile trade account will register another surplus. Typically, December is a good month for the trade account as imports usually decline.
Investec forecasts a trade surplus of R9.4bn for December which would push SA’s annual trade surplus to R5.2bn for 2018 as a whole.
The outlook for trade remains lacklustre, however.
“Weak domestic demand and poor investment growth should keep demand for imports at bay, while concerns around slowing global growth should weigh on demand for exports,” warns FNB chief economist Mamello Matikinca-Ngwenya.
Another indicator which will be closely watched is the Absa-BER purchasing managers’ index (PMI) for January.
The PMI averaged below the neutral 50-index-point level for 2018 as a whole but rose to 50.7 index points in December from 49.5 in November — the first expansion in factory activity after nine months of contraction.
The December reading was the highest recorded since March 2017, thanks mainly to a rise in business activity and new orders.
Due out on Friday, the PMI is likely to show a modest improvement to 51.0 in January from 50.7 in December on a more stable electricity supply and renewed economic optimism, says BNP Paribas economist Jeff Schultz.
Investec’s Kamilla Kaplan is less sanguine, however. She worries that with only a modest pickup in domestic growth expected, and evidence of slowing global growth momentum, the manufacturing sector will struggle to remain in consistently expansionary territory over the course of this year.
Private sector credit extension (PSCE) figures for December are due out on Wednesday.
Though credit demand remained relatively steady at just under 6.0% year-on-year for most of 2018, FNB expects it to have been muted in December by the increase in interest rates towards the end of November.
New vehicle sales for January are scheduled for release on Friday and should reflect positive month-on-month growth given that December purchases are typically postponed to January so that new year vehicle registrations can be obtained.
In line with the consensus expectation for a modest improvement in economic growth, the National Association of Automobile Manufacturers of SA is forecasting 1% year-on-year growth in sales volumes this year after a 1% contraction in 2018.

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