Proceed with caution

 ·3 May 2024

Data published this week has been surprisingly positive and given some cause for hope and optimism about South Africa’s economy – but South Africans have been warned to take a cautious approach when digesting the information.

The key surprises have come from the positive turn in the Absa Purchasing Managers’ Index (PMI) for April, stronger new vehicle sales, and Eskom keeping the lights on for more than a full month.

The latest seasonally adjusted PMI for April improved from its below-the-neutral 50-point mark dip in March – moving from 49.2 points in March to 54 in April.

Absa said the rebound comes from improved business activity—likely boosted by no load shedding for the month and some improvements at the ports—while better domestic demand led to higher new sales orders.

According to the Bureau for Economic Research (BER), while the data is positive on the face of it, apprehension is built into the market.

“Despite this positive momentum, manufacturers remain cautious, evidenced by the decline in the expected business conditions index for April,” it said.

Another positive data point this week comes from surprise vehicle sales, which saw domestic new car sales tick up by 2.2% y-o-y following eight straight months of declines.

This was in the face of market expectations for another decline.

The BER noted that more trading days relative to April 2023 may have helped with the increase, but again, it said the data should be welcomed with caution.

“While welcome, car demand will remain suppressed in an environment with sticky inflation, high interest rates, and higher fuel prices. Worryingly, export sales slumped by 23.9% y-o-y from a high base set in April 2023,” the group said.

The BER said that apprehension in the market is well-founded, given the economic realities in South Africa.

High interest rates and sticky inflation are keeping consumers under pressure, with no end in sight. And even the break from load shedding is not expected to last.

“Eskom (warned) that load-shedding is anticipated to resurface during winter, underscoring ongoing concerns about energy reliability despite the current streak of no disruptions,” it said.

South Africans themselves are fully aware of this reality, given the prevailing air of mistrust around the power utility’s month-long load shedding break, with many expecting outages to return once the elections are over.

Eskom’s winter outlook projects around 50 days of load shedding in the coming winter months, which it says it will keep capped at stage 2. In a worst-case scenario, there could be over 100 days of outages, capped at stage 5.

Taking a broader outlook, finance groups like the International Monetary Fund (IMF) have not projected a reversal in South Africa’s fortunes in 2024, instead cutting the country’s growth prospects in its latest economic outlook.

In January, the IMF projected just 1.0% GDP growth for South Africa. This has now been cut to 0.9%.

Next week, Stats SA will unveil the March manufacturing production data, which should give a better indication of how South Africa is faring. The outlook is less positive than the recent slate of data.

“In February, manufacturing production surprised on the upside. An improvement in the February Absa PMI telegraphed the improvement in manufacturing activity,” the BER said.

“In March, the PMI signalled a slowdown in activity, (thus) annual growth in manufacturing production is likely to have slowed in March.”

Read: South Africans expect load shedding to be back after the elections

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