RELATIVELY sparse local data this week will be eclipsed by global events, which include interest rate decisions by the Federal Reserve, the European Central Bank and the Bank of England.
But a key manufacturing survey today will be closely watched as it may signal that factory output expanded last month, for the first time in 1½½ years.
SA’s purchasing managers index (PMI), a reliable health gauge for the economy’s second-biggest sector, may have nudged above the neutral 50 level after leaping 8,7 points to 48 in September.
“Not much more is required to push the PMI over the boundary of 50 that differentiates growth from stagnation,” said Brait economist Colen Garrow. “The global economy is recovering, which provides positive support for a sector that contributes some 14% to gross domestic product (GDP).”
That would be good news as manufacturing has been hardest hit by the global slowdown and SA’s first recession since 1992.
It contracted by a record 22% in the first quarter, slowing to 10,9% in the second quarter. Figures for the third quarter are not available yet, but official data show it shed 150000 jobs in that period.
Output also fell unexpectedly in August. Garrow points out that a decade ago, factory output accounted for 24% of GDP.
He blames the waning trend in the sector on gains in the rand, which has rallied about 15% on a trade-weighted basis so far this year. Strength in the unit erodes the competitiveness of local exports, and has been singled out by the Reserve Bank and Treasury as a key concern.
Several analysts say they would not be surprised to see a fall in the PMI last month, when the rand briefly scaled a 14-month peak at R7,15/.
Gold and foreign exchange reserves data due on Friday will also be scrutinised closely to see whether the Reserve Bank had stepped up its purchases of hard currency during the month.
Both the Bank and the Treasury have expressed concern about the rand’s strength in the past few weeks, and suggested that the authorities would like to have a greater influence on its level.
Citigroup economist Jean-Francois Mercier believes that gross reserves nudged up to $39,7bn last month from $39,1bn in September. But this would reflect a combination of valuation effects, along with some activity by the Bank in the foreign exchange market.
Gold prices appreciated about 3,6% during that period, which could have boosted the value of reserves about $150m, with a similar increase generated by gains in the euro and the pound.
“The remainder of our projected increase in reserves (more than $200m) would reflect net purchases of foreign exchange by the Bank in the open market.”
Rand Merchant Bank says that after comments from Finance Minister Pravin Gordhan in the medium-term budget last week, there will be more co-ordination between the Treasury and the Bank to “lean against” rand strength.
“We expect a pickup in Bank activity in the market in the coming months,” it said.
RMB believes the Bank bought $300m of foreign exchange last month, helping to boost gross reserves to $39,8bn. Net reserves should have risen by a similar amount.
Isam@bdfm.co.za
