South Africa’s Fourth-Quarter Recovery In Focus

30 November 2020 – New-car sales numbers and data on manufacturing activity could shed further light on SA’s fourth-quarter economic recovery in the week ahead, while Covid-19 news remains a persistent threat that can overshadow economic data.               

The Absa manufacturing purchasing managers’ index (PMI) for November will be released on Tuesday, with the median expectation among three economists polled by Bloomberg for continued expansion in the sector, though at a slower pace than in October.

The PMI is a gauge of the health of the manufacturing sector, with a score below 50 indicating a contraction in activity. The Bloomberg consensus is for an index reading of 60.5 points in November, from 60.9 points in October.

SA’s export performance likely worsened in November on renewed measures to contain rising Covid-19 cases in Europe, a key export destination for SA, Investec economist Kamilla Kaplan said in a note.

The eurozone manufacturing PMI for November reflected a marked slowing in demand, she said.

“This is likely to have weighed on the performance of, and sentiment amongst, export-orientated manufacturers and could be behind a decrease in the PMI gauge to 59 points,” Kaplan said.

However, the local manufacturing sector can be expected to reflect a continued recovery from the collapse in activity earlier in the year, she said.

Vehicle sales numbers for November are also due on Tuesday and are expected to show an improvement from the 25.4% year-on-year fall in October.

Total new-vehicle sales likely remained under pressure in November, partly due to slower replacement cycles by car rental companies, Absa economists said in a note.

Private sector credit extension numbers for October are due on Monday, with the Bloomberg consensus for an uptick to 3.5% in year-on-year growth, from 3.12% in September.

September’s credit extension represented the sixth-consecutive month of deceleration, amid a slowdown in corporate credit growth, in spite of low interest rates.

Absa expects this trend to continue in November, expecting just 3% growth for the month.

September’s credit extension reading was the weakest in a decade, largely due to the slowdown in corporate borrowing, FNB economists said in a note.

“From the household perspective, we expect the rapid rise in demand for home and car finance to be supportive of the credit extension, despite the apparent risk aversion from lenders.

“Overall, we predict continued weak growth in private sector credit extension, weighed on by low aggregate demand, weak labour markets and prudent lending from financial institutions amid an uncertain economic outlook,” the FNB economists said. Source (BusinessLive)