SA Economists: No let-up seen in slow household spending

Economists hope weaker domestic demand environment allowed for a modest trade surplus in December following November’s deficit, writes Claire Bisseker.......

Private sector credit extension, South Africa’s trade balance and the PMI (Manufacturing Purchasing Managers’ index) will dominate local economic data this week while the US Federal Reserve’s first meeting of the year will be the most exciting event on the international calendar.

Private sector credit extension has slowed markedly from double-digit growth rates in 2015 to around 4.6% in November 2016. The December reading due out on Tuesday could show a small uptick if corporate credit growth continues to improve modestly.
This will, however, only serve to mask the collapse of household credit extension which contracted by nearly 4% in real terms in November.

Economists expect household lending growth to have remained at record lows in December given the depressed state of consumer confidence and continued tightness in bank lending.
South Africa’s trade balance for December will also be released on Tuesday.
Economists are hopeful that the weaker domestic demand environment, coupled with firmer commodity export prices and seasonal factors, allowed for a modest trade surplus in December following November’s R1.1bn deficit.

"We will be watching closely to see whether the firm gains in South Africa’s terms of trade, driven mainly by robust industrial commodity price gains (particularly iron ore), are translating into an improved net trade performance," said BNP Paribas Securities economist Jeff Schultz.

 nvestec economist Kamilla Kaplan is anticipating a R6.5bn trade surplus which would take the deficit to around R8bn for 2016 as a whole — a substantial narrowing of the R52.3bn deficit recorded in 2015.

South Africa is likely to deliver a more positive net trade performance this year as long as industrial commodity prices hang onto their gains. Consequently BNP expects the current account deficit to narrow to around 3.8% of GDP in 2017 from an estimated 4.1% in 2016.

The PMI will be released on Wednesday. There is little to suggest that the index, which slipped to 46.7 points in December, managed to lift above the neutral threshold of 50 in January.

The PMI has posted five consecutive months of sub-50 prints but there is some suggestion that the manufacturing sector could stage a gradual recovery over the course of 2017.

"Externally, the global manufacturing PMI ended 2016 on a strong footing, signalling the potential for a lift in global manufacturing sector activity and trade momentum this year," said Kaplan.
Domestic demand from allied industries, such as the mining and agriculture sectors, is also expected to strengthen modestly in 2017 given the stabilisation in commodity prices and dissipation of the drought.
January vehicle sales will be released on Thursday. Overall, new vehicle sales fell 11.4% year on year in 2016 reflecting the poor state of the consumer as well as the overall weakness in economic activity. This underperformance is likely to have continued into January.
Globally, the focus will be on the Federal Open Market Committee meeting on Wednesday. The consensus expectation is that it will hold rates steady at 0.5%-0.75%, having just raised rates in December.
But Fed watchers will carefully dissect the central bank’s tone for any signs of a likely shift in the future path of US policy rates.
Any indications that the Fed may be leaning towards more aggressive tightening in 2017 to counter President Donald Trump’s promised fiscal stimulus would likely strengthen the dollar and pull some of the support out from under the rand.