Up-and-down outlook as rand continues its slide

Inflation data released by Statistics South Africa this week showed the headline Consumer Price Index annual inflation rate in December 2013 was 5.4% – 0.1 of a percentage point higher than the corresponding annual rate of 5.3% in November 2013. On average, prices increased by 0.3% between November 2013 and December 2013. The official average annual inflation rate for 2013 was 5.7% – 0.1 of a percentage point higher than the corresponding average annual inflation rate of 5.6% for 2012. Investec economist Annabel Bishop said the inflation outcome was below market expectations of 5.6% and will likely reduce inflation expectations for the first quarter of 2014.

Presuming inflation will stay within the Reserve Bank’s target range of between 3% and 6%, Bishop said Investec continued to expect no interest rate hikes in 2014. The annual percentage change in the Producer Price Index, which measures the average change in the price of goods and services sold by manufacturers and producers in the wholesale market, was 5.8% in November 2013, compared with 6.3% in October 2013.

But it was a bad start to the year for manufacturing when the Kagiso Purchasing Managers' Index, which measures growth in manufacturing output, showed no positive results from the weak rand as it fell 2.5 points in December to 49.9 – the first time since last April that it had fallen below the critical 50 point mark.

The rand reached R10.96 to the dollar this month from R10.38 in November 2013 – although Investec said this depreciation is neither as rapid nor as severe as the ones that took place in 2001 and 2008. The start of quantitative easing tapering in the United States in December 2013 has seen the rand weaken, although the Reserve Bank governor, Gill Marcus, has noted it will have a positive impact on South Africa in the long run.

Manufacturing production increased by 0.3% in November 2013 compared with November 2012 and was mainly due to the increased production of motor vehicles, parts and accessories and other transport equipment, as well as food and beverages, and glass and nonmetallic minerals.

Seasonally adjusted manufacturing production for the three months ended November 2013 decreased by 1.0% compared with the previous three months. Retail sales, however, accelerated to 4.2% year on year in November from 1.4% in October, surprising market expectations of just 1% in growth. Growth in broad money supply slowed to 6.3% year on year in November from 7.1% in October, the Reserve Bank reported at the end of December 2013.

The International Monetary Fund has this week revised South Africa’s economic growth outlook for 2014 downward from 2.9% to 2.8% but believes it will still be higher than the growth recorded in 2013.

The Bank of America Merrill Lynch believes South African growth could reach 2.9% as exports to Europe, the US and China rise, and predicted this would generate as many as 280 000 new jobs a year.

Bishop said that data is indeed a mix of positive and negative – "but it is still early in the year and we will get clearer direction as we move into 2014".

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