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ECONOMIC WEEK AHEAD: Manufacturing data set to show recovery
ECONOMIC WEEK AHEAD: Manufacturing data set to show recovery

ECONOMIC WEEK AHEAD: Manufacturing data set to show recovery

ECONOMIC NEWS - Aug 8th 2016, 09:15

MANUFACTURING production is expected to have continued to increase, but at a slower pace in June year-on-year compared to May. 

Statistics SA will release the June manufacturing production data on Thursday. Output is forecast to have increased 2.8% year-on-year in June after rising 4% in May, according to a median consensus forecast from a survey of five economists.

The projected increase is in line with the recently released seasonally adjusted Barclays purchasing managers’ index (PMI), which rose to 53.7 index points in June from 51.9 in May.

The index gauges activity in the manufacturing sector and an above-50 reading points to expansion in activity.

Higher manufacturing production is a good indicator of positive economic growth in the second quarter, and means that the country might well have narrowly escaped a technical recession, or two consecutive quarters of GDP decline.

The ongoing improvement of the manufacturing PMI and sufficient electricity production "leads us to believe that manufacturing production should have held up in June", FNB economist Mamello Matikinca said.

Stats SA will also release mining production data on Thursday. Mining production is expected to have continued declining, but at a lower pace on a year-on-year basis in June after a 4.4% year-on-year contraction in May. Increased export volumes should have encouraged production and very limited stoppages should have helped contain the rate of contraction in mining production, said Matikinca.

The manufacturing and mining sectors are under pressure from weak demand and a slow recovery in commodity prices.

Investec economist Kamilla Kaplan said production in both sectors appears to have improved, with the rate of contraction in mining having decelerated, while manufacturing production lifted further from the growth registered in the first quarter.

Gold producers stand to benefit slightly more than other miners in light of a higher gold price. BMI Research — a subsidiary of the Fitch Group — expects gold prices to continue edging higher in 2016 as weak economic growth and higher inflation keep real interest rates low in major developed markets.

The research company slightly raised its 2016 average gold price forecast from $1,275 per ounce to $1,300 per ounce.

This week will also be about whether the rand gains made last week will be maintained.

The rand firmed to a nine-month high of about R13.79 to the dollar in line with other emerging-market currencies.

This was mainly as a result of the weakening of the pound following the Bank of England’s interest-rate cut to 0.25% and quantitative easing.

"Although the rand is now strengthening from clearly undervalued levels, there are no guarantees as to the continuation of the rally just yet. This will likely be event-driven," Standard Chartered Bank chief economist for Africa, Razia Khan, said.

One of the events was last week’s local government elections. Khan said: "Beyond the knee-jerk reaction we see now, actual evidence of a reformist intent will need to be seen for the continuation of this rand rally."

SA is already benefiting from a firmer currency, evidenced by the 99c per litre decrease in the petrol price on August 3.From DFM Publishers (Pty) Ltd 

Read more about: south africa | manufacturing | economy

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