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The Citizen
6 days ago
- Business
- The Citizen
Weekly economic wrap: US tariffs, mining production and retail sales
The US tariffs have turned the global economy into a roller-coaster as it affects every part of economic growth and decline. In what was supposed to be a quiet week on the economic front, US tariffs kept people watching the economic news, while there was local news on mining production and retail sales. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the big global data prints of the week came on Tuesday, with better-than-expected Chinese GDP growth for the second quarter and US core inflation coming in lower than expected, but still (finally) reflecting some signs of tariffs being passed on to consumers. In South Africa, she says, the uptick in mining production and retail sales was positive for gross domestic product (GDP) for the second quarter. 'There was plenty of political news to digest. Globally, US President Donald Trump dished out more tariffs to be implemented on 1 August, while the push to essentially oust US Federal Reserve (Fed) chair Jerome Powell continued. 'Locally, President Cyril Ramaphosa placed police minister Senzo Mchunu on special leave, something which has never happened before, pending the outcome of another commission of inquiry.' ALSO READ: Devastating impact of US tariffs on SA automotive sector even before implementation Big story of the week: 30% US tariff on European Union She points out that the big story over the weekend was that the US plans to impose a 30% tariff on the European Union (EU), more than the 20% Liberation Day tariff announced in early April. Key training partners Canada (35%) and Mexico (30%) face similar hurdles, although some exceptions for trade covered by the United States-Mexico-Canada Agreement (USMCA) remain in effect. 'All countries have, so far, held off on immediate retaliation, but the EU finalised a list of countermeasures to strategically target US exports to the EU. It has held off on retaliating so that negotiations can continue, but plans to target €72 billion of imports, ranging from industrial goods (Boeing, cars and machinery) to agri-food products (including bourbon). 'Some EU countries pushed for the option to use anti-coercion instruments, which give broader powers to, for example, introduce taxes on US tech companies or restrict access to parts of the market.' ALSO READ: ArcelorMittal warns it might close without urgent solution to challenges Headlines in global markets written in halls of power, not just Wall Street Bianca Botes, director at Citadel Global, says this week in global markets the headlines were written not just on Wall Street, but in the halls of power from Washington to Beijing. 'Trade, technology and teetering central bank policies collided, reordering how investors see risk, reward and the future path of markets.' She says Trump's surprise announcement of potential sweeping tariffs on its key trading partners, South Korea, Japan, Brazil and Canada, sent waves through the commodity world and reignited concerns about global supply chains. 'Notably, a proposed hefty 50% tariff on copper imports, potentially starting 1 August, catapulted the red metal's futures prices. While previous tariff announcements sometimes triggered swift, knee-jerk selloffs, market reaction this time was more nuanced. 'Why? Investors are, by now, warier but also somewhat desensitised to the tug-of-war on trade. Rather than a wholesale equity retreat, money, instead, flowed into safe havens. Silver surged nearly 4% and select commodity classes outperformed as investors hedged their exposure. 'This sector-by-sector action underscores a key theme for 2025: the world is learning to trade around trade policy, analysing which assets get hit hardest and which might benefit.' ALSO READ: Government must intervene with US tariffs, act stronger with police corruption Oil and gold also affected by US tariffs Botes points out that oil steadied on supply worries, while gold dipped on strong data. 'Brent Crude hovered near $69.60/barrel, holding on to a 1.5% gain, after geopolitical tensions and tighter supply boosted prices. 'Meanwhile, gold hovered just below $3 340/ounce, heading for its first weekly decline in three weeks. The retreat follows stronger US data, with retail sales rebounding and jobless claims hitting a three-month low, thereby reducing the urgency for Fed rate cuts. 'Despite the policy tug-of-war within the Fed, gold remains underpinned by geopolitical risks and tariff uncertainty. With Trump's notification of tariff rates to over 150 trade partners, safe haven appeal remains intact.' According to Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, the rand is trading around R17.70/$ this afternoon, pulling back from R17.92 last Friday despite worries about the 30% import tariff on exports to the US. 'The rand benefited from positive sentiment that boosted emerging market currencies.' In commodity markets, the Brent Crude Oil price softened on concerns about the effects of the Trump tariffs on global demand, while gold continued to move around $3 340 and platinum jumped to the highest level since August 2014 as supply concerns worsened. ALSO READ: Does stronger economic activity indicate improved GDP? Will mining production perform better in the second quarter? Mining production increased by an above-consensus 0.2% in May, marking the first annual expansion since the start of this year, after a sharp 7.7% contraction in April. Iron ore was the largest positive contributor, while declines in manganese ore and coal production were the biggest drag. Nomvelo Moima, an economist at the BER, says that barring a sharp reversal in June, it appears the mining sector is likely to contribute positively to GDP in the second quarter. Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the increase in seasonally adjusted mining output suggests a continued improvement in output in the second quarter, with production up 2.6% in the three months until May. 'Should this trend continue, mining production will contribute positively to GDP growth.' Nkonki and Matshego say the outlook remains murky. 'While most mining products will likely be exempted from the 30% US tariff on South African imports, the ongoing tariff war will hurt global growth in the quarters ahead, weighing on export demand and commodity prices.' ALSO READ: Retail sales: South Africans spent R19.6 billion on clothes and furniture in May Retail sales and motor trade faring better, but wholesale drags Statistics SA released a batch of domestic trade data for May, affirming that consumer spending remained solid during the second quarter. Real retail trade sales increased by 4.2%, while motor trade sales increased by 4.7%. However, the wholesale sector did not fare too well, as annual wholesale trade sales contracted for a fifth straight month in May by 4.3%. Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say retail activity over the past three months reflected no growth compared to the preceding three-month period, suggesting that household spending is losing momentum. 'However, any build-up in momentum in June will support GDP growth.' Nkonki and Isaac Matshego point out that only general dealers and hardware stores saw sales increase over the month, while sales at most other retailers, including online stores, declined in May. 'Despite the mixed results, sales remained well above last year's levels across the board. 'Retailers should benefit from the ongoing recovery in consumer demand as household incomes strengthen, inflation remains relatively subdued, and the recent interest rate cuts reduce borrowing costs and revive credit demand.'
The Citizen
04-07-2025
- Business
- The Citizen
Weekly economic wrap: politics dominate, lower inflation expectations
Between fears of how the economy will react to the DA-ANC tensions and the US' new bill and tariffs, inflation expectations decreased. Politics dominated the economic news this week, with local and global politics taking centre stage, while a South African survey on inflation expectations had good news for consumers from all the groups surveyed. Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER) points out that while tensions persisted in South Africa between the DA and ANC, international headlines were dominated by the passage of the 'Big Beautiful Bill' in the US and the fast-approaching US tariff deadline. Bianca Botes, director at Citadel Global, says gold gained, while oil slipped as fiscal and trade risks weigh on commodities. 'Gold advanced to around $3,330/ounce, maintaining a solid position due to lingering uncertainty, even in an improved-sentiment environment. 'The US Tax-and-Spending bill's anticipated $3.3 trillion-plus impact on the deficit, along with the risk of new tariffs, bolstered gold's appeal.' ALSO READ: Policy Uncertainty Index drops slightly while global and local uncertainty remain Oil markets and the rand trending lower She says oil markets, on the other hand, are trending lower, with Brent Crude falling to approximately $68.50/barrel. 'Market sentiment was shaped by speculation that the expanded Organization of the Petroleum Exporting Countries (OPEC+) may increase output at its upcoming meeting, adding to downward pressure. 'Nonetheless, medium-term forecasts remain positive, with some analysts expecting higher average prices in 2025 due to persistent supply constraints outside OPEC and steady demand growth. However, geopolitical factors remain in play, particularly US sanctions on Iran, which added a layer of uncertainty to the global supply picture.' The rand kept surprising economists, strengthening to around R17.50/$, its strongest level since late 2024, supported by a declining dollar, elevated gold prices and improving local political sentiment. 'While the rally has been encouraging, the rand's outlook remains sensitive to both domestic developments and broader commodity market dynamics.' Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, say the rand was buoyed by higher global risk appetite this week, firming to its strongest level since the second week of November, trading at R17.60 on Friday afternoon. ALSO READ: Inflation expectations almost at four-year low Inflation expectations looking good De Schepper says according to the BER's inflation expectations survey, expectations declined across the board in the second quarter, with the inflation expectations of all three social groups, (businesspeople, trade union representatives and analysts) decreasing, with the downward adjustment extending across the forecast horizon. On average, the respondents expect that headline consumer inflation will be 3.9% during 2025, then rise gradually to 4.3% in 2026 and 4.5% in 2027. The inflation expectations of households for the next 12 months decreased to 5.4%, from 5.7% before. This is the lowest rate since the fourth quarter of 2021. 'The moderation in expectations not only firms up the likelihood of a 25 basis points rate cut in July but should also support the South African Reserve Bank's (Sarb) desire to shift to a lower inflation target. Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the household experience of inflation is determined by spending patterns. 'While lower-income households will be more affected by food, higher-income households will be more sensitive to transport and insurance costs. That said, higher household expectations reflect the nuances beyond headline inflation readings. 'This is a dynamic that will also affect how quickly the Sarb is able to efficiently and sustainably achieve a lower inflation objective. High administered inflation may need to be compensated for by further non-admin core disinflation, which suggests less monetary policy easing. That said, the efficacy gains from a credible central bank and effective communication cannot be overlooked.' ALSO READ: Absa PMI increases but in contractionary territory for eighth consecutive month PMIs a mixed bag again The Absa Purchasing Managers' Index (PMI) increased by 5.4 points in June to reach 48.5, the second-highest reading this year and the largest monthly increase since September 2024, although it remains below the neutral 50 points. The S&P Global PMI, on the other hand, decreased by 0.7 points to 50.1 in June. While it remains in expansionary terrain, the underlying data showed output and new business declines, De Schepper points out. Furthermore, she says, the forward-looking confidence index slipped to its lowest level in four years. 'The divergence between this index and the Absa PMI could reflect survey timing: the Absa survey was conducted after the end of the 12-day war between Isreal and Iran and amid a lull in global tariff news, while the S&P survey was fielded during the final two weeks of the month and likely captured more of the lingering uncertainty.' Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the good news in the Absa PMI is that new sales orders surged by 7.8 points, driven mainly by domestic demand. 'Despite stronger demand, production declined slightly, and supplier delivery times lengthened, likely due to increased activity rather than supply issues.' ALSO READ: New vehicle sales finish first half of 2025 on a noteworthy high New car sales keep increasing Naamsa reported that new vehicle sales increased by 18.7%, slightly down from 22% in May, with sales increasing for a fourth consecutive quarter. Exports also bounced back with 7.9% growth from a 14.6% contraction in May. Nkonki and Matshego say new vehicle sales surprised on the upside in June, much higher than their forecast of 14.3%. They noted that imported models outperformed those produced by local OEM's, reflecting heightened price sensitivity among consumers given still-tight household budgets. 'The broader recovery in vehicle sales is supported by subdued inflation, better credit conditions and the 100-bps drop in interest rates. However, the outlook is tempered by soft business confidence and lingering uncertainty around trade policy. Still, the industry should benefit from a more supportive macroeconomic backdrop heading into the second half of the year.'
eNCA
03-07-2025
- Business
- eNCA
Inflation expectations hit 4 year low
JOHANNESBURG - South African inflation expectations have cooled to their lowest levels in nearly four years. This provides policymakers with another reason to press ahead with the easing cycle. According to new data from the Bureau for Economic Research, average inflation expectations for the next two years have dropped to 4-point-5 percent in the second quarter. This is slightly down from 4,7 percent. The SA Reserve Bank's Monetary Policy Committee watches this figure closely, weighing the timing and pace of its much-anticipated easing cycle. The MPC prefers to anchor inflation expectations at the 4,5 percent midpoint of its target band.
IOL News
02-07-2025
- Business
- IOL News
Manufacturing industry sentiment shows slight improvement, still in contraction
The Absa Purchasing Managers' Index (PMI) June 2025 released on Tuesday increased by 5.4 points to 48.5 in June 2025 but remained in contractionary territory for the eighth consecutive month.. Sentiment in the manufacturing industry in South Africa remained in the contractionary territory despite ticked up slightly in June, marking its second-highest reading of the year. Data from the Absa Purchasing Managers' Index (PMI) on Tuesday revealed a modest recovery in South Africa's economic landscape, with the index rising by 5.4 points to reach 48.5 in June from 43.1 in May. Despite this encouraging movement, the PMI indicated that the economy remained in contractionary territory for the eighth consecutive month., revealing the ongoing struggles facing the nation. Nonetheless, economists welcomed this increase, noting that the 5.4-point gain stood as the most significant rise since the 9-point jump recorded between August and September of 2024. Nkosiphindile Shange, economist at the Bureau for Economic Research, which conducts the PMI on behalf of Absa, said new sales orders increased by 7.8 points to 46.1 in June, signalling some recovery in demand. 'While export sales recovered somewhat in June relative to May, volumes remain near the lowest levels seen this year. This suggests that domestic demand boosted the large recovery in total new sales orders,' he said. 'However, the improvement in demand failed to boost production as the business activity index decreased by 1.5 points to 41.9 points in June.' In response to the uptick in orders, the supplier deliveries index also noted an increase, rising by 6 points to 55.1, which signals extended delivery times linked to heightened order volumes. Interestingly, there were no significant supply bottlenecks reported, implying that suppliers have coped with the heightened demand so far. On a more positive note, the employment index recorded a substantial jump of 9.7 points to 49.7, marking its highest level since March 2024. Despite this encouraging trend, economists cautioned that continued improvements are necessary before asserting that the manufacturing sector is on a path of recovery. The purchasing price index, indicating inflationary pressures, continued its downward trajectory, decreasing by 2.3 points to 58.1 in June. Economists noted that the stronger performance of the rand—averaging 40 cents firmer against the dollar throughout June—coupled with a decline in diesel prices earlier in the month, played a role in this positive movement. Professor Raymond Parsons, an economist from the North West University, said this was a positive but modest trend. Parsons said the priority now was to build on the incipient economic upturn in ways that guarantee a sustained recovery. 'Although higher in June 2025, the Absa PMI again, nonetheless, confirms that the SA economy is still struggling to gain momentum. By still being in negative territory for an eighth consecutive month, high-frequency data like the Absa PMI is still sending out mixed signals about the strength of the economic recovery,' Parsons said. Efficient Group chief economist, Dawie Roodt, said the problem with the South African economy was mainly growth, or lack thereof. 'We are flirting with recession; it's just not going anywhere at the moment. What we actually need is some sort of jolt, some sort of reaction from politicians to get the economy out of this situation,' Roodt said. 'The PMI illustrates this that it's a little better, but it's still in contractionary territory. It's not good; we need new policies and ideas for something different to get the economy growing.' Investec chief economist, Annabel Bishop, said the manufacturing sector's contraction was reflective of the insufficient capacity of the ports and rail to export out bulk commodities. 'Progress on improving Transnet's capacity, on both the rail and port sides to end the domestic freight crisis that weakens South Africa's growth rate, continues to be too slow, with both mining and manufacturing production contracting in Q1.25,' she said. 'Bouts of load shedding starting up this year signify insufficient electricity supply to consistently meet demand when planned and unplanned maintenance occurs, with the country's extremely aged electricity distribution system prone to breakdowns. 'In the main, while load shedding remains largely in abeyance, economic growth does put strain on the aged grid and limits the economy's growth beyond 1.0% y/y, with the PPP's planned to drive improved supply conditions yet to sufficiently occur.' BUSINESS REPORT
The Citizen
01-07-2025
- Business
- The Citizen
Absa PMI increases but in contractionary territory for eighth consecutive month
The PMI shows that South Africa's manufacturing sector can just not succeed in getting the numbers to make the economy grow. The Absa PMI increased in June by 5.4 points to 48.5, but the headline PMI remained in contractionary territory for the eighth consecutive month, although it is encouraging to note that the current level is the second highest in 2025 after the 48.7 points in March. The 5.4-point increase is also the highest increase since the 9-point jump between August and September last year. The Absa Purchasing Managers' Index (PMI) is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa. On the positive side, new sales orders increased by 7.8 points to 46.1 in June, signalling some recovery in demand according to the BER. While export sales recovered somewhat in June compared to May, volumes remain near the lowest levels seen this year. The BER says this suggests that domestic demand boosted the large recovery in total new sales orders. However, the improvement in demand failed to boost production as the business activity index decreased by 1.5 points to 41.9 points in June. ALSO READ: Manufacturing PMI for April shows deteriorating SA economy Supplier deliveries and employment in Absa PMI increased The supplier deliveries index increased by 6 points to 55.1 in June. The BER says this indicates that the delivery times were extended due to some delays, possibly due to the uptick in orders and suppliers becoming busier, as respondents did not mention any significant supply bottlenecks. The employment index increased by 9.7 points in June, reaching 49.7 points, the highest since March 2024. The BER says this is a big jump for this index, but it needs to be sustained for some months before we can be confident that the manufacturing sector is adding jobs at a significant pace. The purchasing price index continued its downward trajectory, decreasing by 2.3 points to 58.1 in June. The BER points out that despite some volatility, the rand was on average 40c stronger to the dollar in June than in May and stayed below R18/$ for a large part of the month. On average, the Brent crude oil price was higher in June than in May, but the decline in diesel prices at the start of June likely helped. The index tracking expected business conditions in six months' time was unchanged at 62.5 points in June, after a significant 13.9 points increase in May. The BER says the apparent end to the 12-day war between Israel and Iran may have helped ease nerves, with no further news on the global tariff front. ALSO READ: PMI down slightly with concerns about global trade uncertainty Manufacturing activity remains weak Jee-A van der Linde, senior economist at Oxford Economics Africa, says despite the fact that South Africa's manufacturing PMI recovered partially in June driven by a mild improvement in demand, overall manufacturing activity remains weak, with the second-quarter PMI average lower on a quarterly basis at 45.4, below the previous quarter's 46.2. He says this suggests that a quarterly contraction in the manufacturing sector is also likely for the second quarter. Van der Linde also points out that despite the increase in the new sales orders index, his improvement failed to boost production as the business activity index declined and although the employment index increased strongly, it remains to be seen whether this momentum can be sustained and translate into sustainable job creation. This chart shows that the second quarter average of 45.4 is lower than the 46.2 average at the start of 2025: PMI must make up for poor performance in first quarter in second quarter He says, after a poor performance in the first quarter, the manufacturing sector must make up considerable ground in the second quarter. 'Although actual production increased by 1.9% compared to April, factory output levels were still 6.3% lower than last year, with the May manufacturing PMI number indicating activity remained sluggish due to muted demand. 'When factoring in the June PMI numbers, it is evident that the second-quarter average is lower than the preceding three-month period. This aligns with our overall view for the South African economy, which is that general activity is unlikely to have improved from the start of the year.' ALSO READ: SA business activity runs out of steam at end of 2024, but not all bad — PMI This table shows that despite a broad improvement in June, the PMI remains stuck in contractionary territory: Source: BER
