Load shedding worsens during September, while local business and consumer confidence decline, and interest rates are increased by 75 basis points.
What stage are we on?
Second-quarter gross domestic product printed at -0,7%; evidence of the impact of industrial action in the mining sector, load-shedding and floods in KwaZulu-Natal, but still better than many had feared. Unfortunately, while the surveys of purchasing managers index activity suggest an improvement in the third quarter, load-shedding has continued unabated, worsening in September, and diminishing the recovery with each week that it continues. With higher spending on diesel among other factors, Eskom has applied for tariff increases of 32,0% in 2023 and 9,7% in 2024. A newly constituted Eskom board, with added technical skill, has been given lofty goals and a mammoth challenge.
After almost two years, the current account balance turned negative in the second quarter, reflecting a recovery in imports, but also large dividend payments to offshore shareholders. With the tailwinds from commodity prices subsiding, the deficit is a further signal of a less constructive backdrop for the currency. The enterprise-based measure of employment from the Quarterly Employment Survey (QES) showed continued job losses in the second quarter. While some of the decline can be attributed to temporary census workers, employment measures remain below before Covid-19 levels. Unsurprisingly, business and consumer confidence remained weak in the second quarter.
Headline inflation for August came in at 7,6% year on year, marginally lower than the July peak of 7,8%. While the inflation print was largely in line with expectations, producer price inflation surprised to the downside at 16,6%.
In line with expectation and hawkish commentary ahead of the meeting, the South African Reserve Bank increased interest rates by 75 bps. Three members voted in favour of a 75 bps hike and two were in favour of a 100 bps hike, underscoring concerns of a weaker rand and persistent risks to the inflation outlook. Despite suffering in line with the global bond rout in September, local bond markets managed to deliver positive returns, be they marginal, of 0,6% over the quarter. The rand, however, lost ground against the US dollar, depreciating by about 11,5% over the quarter. Local equity markets weakened in line with global trends, with the FTSE/JSE All Share declining 4,1% in September and 1,9% over the quarter. Difference in benchmark composition led to larger losses for the shareholder weighted indices over the quarter. The interest rate sensitive property sector remained under duress, leaving it the worst performing asset class over the quarter and year to date (-15,8%).
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