Activity data for July suggest that South Africa’s recovery lost steam at the start of Q3. We remain comfortable with our below-consensus growth forecast of 0.5% for this year as a whole.
- Activity data for July suggest that South Africa’s recovery lost steam at the start of Q3. We remain comfortable with our below-consensus growth forecast of 0.5% for this year as a whole.
- Data released today showed that retail sales rose by 2.0% y/y in July, down from a 2.4% y/y increase in June. The figures are based on a new sample used by Statistics South Africa. The reading was weaker than expectations; the Bloomberg consensus forecast was for growth of 2.6% y/y. The slowdown in sales growth was driven by weaker performance of general dealers. In month-on-month terms, retail sales were up by just 0.2%, after expanding by 0.7% in June. (See Chart 1.)
- The July retail figures add to evidence from other sectors that the recovery in Q2 lost some momentum in Q3. After contracting in June, manufacturing production returned to growth in July, but it was the second lowest reading so far this year. And there were also signs of renewed weakness in the mining sector. Reduced availability of electricity may have dampened business activity across the economy; total electricity generation fell in July. (See Chart 2.)
- Our GDP Tracker suggests that the economy grew by 0.6% q/q saar over the three months to July. (See Chart 3.) Although this partially reflects May and June activity, it would still be a weak result after growth of 3.1% q/q saar in Q2. And it would support our view that the strong result in Q2 was mostly due to base effects, and that underlying momentum in the economy remains weak. More timely figures have been even worse; the South African Chamber of Commerce and Industry’s business confidence reading tumbled to a 34-year low in August.
- Weak hard activity data will give the Reserve Bank another reason to cut its benchmark rate, from 6.50% to 6.25%, tomorrow. This is a non-consensus call. (See here.) If, however, policymakers hold fire tomorrow, the window of opportunity for further easing will close as we think that price pressures will pick up in the coming months. (See Chart 4.)
Chart 1: Retail Sales (% m/m)
Chart 2: Activity Data (% m/m)
Chart 3: GDP & CE GDP Tracker
Chart 4: Consumer Prices & Retail Sales
Sources: Stats SA, Capital Economics
Virág Fórizs, Emerging Markets Economist, +44 20 7808 4079, firstname.lastname@example.org