Although this week’s economic data looked good for GDP, there is a pervasive sense of waiting for the US tariff that affected unemployment.
It was a busy week on the economic data front with most of the local data looking good for the second quarter South African gross domestic product (GDP). South Africa also submitted a new proposal for the US tariff ,which will hopefully see the 30% reduced.
Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the batch of June high-frequency data was generally positive for GDP. She notes that while June retail sales slowed after a very strong April and May, the full quarter was solid and, as such, also bodes well for consumer spending in the second quarter.
“In addition, the quarterly improvements in mining and manufacturing production are welcome after both sectors contracted in the first quarter. Conversely, wholesale declined and the labour force survey showed an uptick in the unemployment rate, with little job growth outside of the trade sector.”
De Schepper says there was also plenty to digest on the international data front with the biggest release being the US inflation data. “After a softer-than-expected consumer inflation print, markets fully priced in a 25 basis points rate cut by the Federal Reserve in September, with some talk of a potentially bigger cut. However, a surge in wholesale inflation (PPI) provided a sense check to this narrative.”
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Everyone waiting for the outcome of the Trump/Putin talks on Ukraine
Bianca Botes, director at Citadel Global, points out that oil markets have been treading water, with Brent slipping back under $67/barrel after a short-lived bounce, as traders wait to see whether the Alaska meeting between the US and Russian presidents can deliver tangible progress on Ukraine.
“Washington warned of sharper sanctions on Russian crude buyers if talks fail, keeping geopolitical risk priced in. At the same time, signs of stronger demand from Japan and the prospect of US monetary easing are acting as a counterweight to the OPEC+ (Organization of the Petroleum Exporting Countries and other oil-producing countries) supply expectations and demand-growth concerns.
“Gold has been losing ground, heading for its worst week since late June. However, it is marginally in the green this morning. The hotter US inflation print of 2.7% has shifted rate-cut forecasts toward a slower pace, dulling bullion’s appeal in the near term.”
Botes says the rand has pulled back to around R17.60/$, giving up its earlier strength as gold prices slipped and the greenback regained some lost ground. “Domestic sentiment remains cautious, with stronger manufacturing output offset by weaker employment and unease over the long-term cost of US trade measures.”
The rand was trading at R17.58/$ on Friday afternoon.
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Unemployment increases again in the second quarter
According to Statistics SA’s Quarterly Labour Force Survey, the unemployment rate increased to 33.2% in the second quarter, up from 32.9% in the first quarter.
Damian Maart, economist at the Bureau for Economic Research, says the number of people classified as not economically active due to discouragement declined by 0.8% (28 000), while those not economically active due to other reasons remained the same between the two quarters.
“This decline pushed the expanded unemployment rate down by a modest 0.2% to 42.9% in the second quarter, which remains worryingly high.”
Busisiwe Nkonki and Isaac Matshego, economists at the Nedbank Group Economic Unit, noted that overall, job creation remained low as companies sit with excess capacity amid weak demand and uncertainty regarding US trade policies affecting South Africa.
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the increase in the unemployment rate, combined with the ongoing moderation in the absorption rate, underscores persistent vulnerabilities in the labour market and the economy’s limited capacity to generate much-needed jobs.
They point out that the economy managed to recover 2 272 053 of the jobs lost in the first half of the pandemic year (2020) and the 659 566 jobs lost in the third quarter of 2021 after the July 2021 social unrest.
“However, formal non-agricultural employment diverged from its pre-pandemic trajectory, a sign of the economy’s weakened structural health and diminished ability to achieve the job creation ambitions of the National Development Plan (NDP).”
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Retail sales growth fell short
Retail sales growth slowed notably but is still positive on a quarterly basis. It was under market expectations of 3.3%, posting a 1.6% increase in June compared to 4.3% in May. Wholesale trade sales, on the other hand, contracted at a slower pace of 1.7% in June compared to a 3.7% decline in May. Maart says this marked the slowest rate of contraction in the past three months.
Motor trade sales grew at a slower annual rate of 3.1% in June, down from 4.1% in May. Sales were flat monthly and quarterly growth was marginal at 0.6%.
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say despite the loss in momentum, this print suggests that the retail industry grew by 0.9% in the second quarter, affirming their view of a recovery in GDP growth in the second quarter.
Nkonki and Matshego expect the upward momentum in retail sales to continue, supported by rising real incomes, subdued inflation, continued withdrawals of contractual savings, and lower debt servicing costs compared to a year ago.
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Manufacturing and mining production surprised to the upside
Manufacturing production grew by 1.5% compared to the first quarter, which saw a 1.9% decline. On an annual basis, manufacturing production growth also surprised to the upside, exceeding market expectations of 0.8% by rising to 1.9% in June, Maart says.
Like factory output, mining production outperformed expectations, showing a notable improvement with an increase of 2.4%, in its second month of growth. The biggest boost to the annual performance came from platinum-group metals.
Maart says overall mining production is set to make a positive contribution to GDP growth in the second quarter, recording a 3.9% increase compared to the previous quarter.
Nkonki and Matshego say the outlook for both sectors remain murky. “The 30% US tariff will directly affect manufacturing production as US demand for South African products decline, but the cyclical upturn in domestic demand should help to soften the blow.
“Given that most mining products are exempt of US tariffs, this sector will be affected indirectly as US trade policies place downward pressure on global growth and commodity prices.”
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the full manufacturing and mining data suggests that the sector contributed positively to GDP growth in the second quarter, based on the 1.6% quarterly growth.