Sanisha Packirisamy, Economist at Momentum Investments Group
• Business sentiment improved by a marginal three points to 38 in the third quarter of 2024 according to the Rand Merchant Bank (RMB)/ Bureau for Economic Research (BER) Business Confidence Index (BCI).
• The changes in the BCI sub-components were a mixed bag. New vehicle dealers recorded a 17-point improvement which was the main factor driving the BCI increase. Retailers also expressed higher confidence levels (six points higher) while building contractors and wholesalers recorded a decline in sentiment. Manufacturers’ sentiment was unchanged in negative territory.
• According to Statistics South Africa (Stats SA), seasonally adjusted (sa) retail trade sales expanded in the second quarter, with a broad-based increase across the seven retailers.
• The two-pot retirement reform will benefit retail trade sales but this will likely be short-lived in our view. A more sustainable recovery in the retail sector will likely follow from interest rate cuts and contained inflationary pressures. Employment would also need to increase more meaningfully.
• Mining production was weak in the first half of 2024, declining by 1.7% quarter-on-quarter (q/q) in the first quarter and a further 0.8% q/q in the second quarter.
• The mining sector report for 2022 published by Stats SA highlights the importance of Platinum Group Metals (PGMs) in the mining sector. In 2022, PGMs accounted for the biggest share of total mining income. The industry’s share of total mining income grew significantly between 2012 and 2022 while gold and most of the other minerals accounted for a smaller share over that period. PGMs also accounted for the largest share of total mining employees in 2022 but this share has decreased over the past 10 years.
• As such, the threat of the rise in electric vehicles (EV) which do not require PGMs is a concern but PGMs are classified as a critical mineral, which means the clean energy transition provides an opportunity for PGMs.
• Manufacturing production, reported by Stats SA, expanded by 1.1% q/q in the second quarter. While manufacturers’ sentiment was unchanged in the third quarter, RMB indicates that fewer manufacturers were concerned about the general political climate posing a constraint to investment.
• The agriculture sector experienced a tough second quarter with production down 2.1% q/q and sentiment, measured by the Agricultural Business Chamber of SA (Agbiz)/ Industrial Development Corporation’s (IDC) Agribusiness Confidence Index, down to 38 (the lowest level since the third quarter of 2009). Volatile weather patterns are likely to continue driving inconsistent activity in the agricultural sector.
• Structural reform is gaining momentum. In the third quarter, The SA National Water Resource Infrastructure Agency (NWRIA) Bill was signed into law and the National Transmission Company of SA (NTCSA) commenced macro research | business pulse | september 2024 Page 2 of 6 operations. Maintaining the reform momentum has the potential to boost business confidence and fixed investment.
• Despite the formation of a government of national unity (GNU), firms appear cautious about the economic outlook, registering only a slight improvement in sentiment levels that remain below neutral. In our view, further proof that economic reforms are being effectively implemented will raise sentiment levels in time, lifting growth in the outer years of the forecast horizon.
Read the full report here.
ENDS
