Economics weekly
By: Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole, Koketso Mano
In this year's Medium-Term Budget Policy Statement (MTBPS) Treasury once again referenced the public and private sector fixed investment chart (Figure 1), raising two key concerns. Firstly, fixed investment remains significantly below the 30% of GDP target set by the National Development Plan, and secondly, Treasury underscored the importance of robust public and private sector fixed investment as a foundation for inclusive and sustainable growth. In the short term, infrastructure investment should drive demand for labour and materials, particularly in the construction sector, and Treasury estimates that every R1 million spent on a construction project will create more than three jobs for individuals with a matric certificate as their highest qualification (Figure 2). This highlights the potential of infrastructure investment to stimulate economic activity and create employment opportunities for South Africa's abundant workforce with secondary-level education.
Recognising the significance of infrastructure investment, the government has long focused on enhancing project planning and implementation. To further this goal, it aims to transform the approach to public-sector infrastructure by creating conditions favourable for private-sector involvement, improving project preparation, strengthening partnerships, and exploring alternative financing mechanisms. Starting in 2024/25, Treasury will integrate project preparation support, transaction advice for public-private partnership (PPP) projects, and ring-fence financing into a single structure to expedite financial closure for large-scale projects. Funding will also be bolstered by bilateral loans, concessional financing, and infrastructure bonds.
Government's plan to scale up private-sector participation
To catalyse greater private-sector involvement in public infrastructure, government will implement several key reforms (Figure 3):
Week in review
Private Sector Credit Extension (PSCE) growth remained resilient, even as it slowed to 4.6% y/y in September, from 4.9% y/y in August. The outcome exceeded market expectations for a 4.2% increase and reflected a slowdown in corporate lending while there were signs of stabilisation in household credit.
Corporate credit cooled to 5.6% from 6.3% previously, weighed down by a slower uptake of general loans and advances. Conversely, corporate mortgages continued the upward trend, accelerating to 4.6% from 4.0% previously, reflecting the commercial real estate market's recovery. Household credit remained relatively unchanged at 3.3%, supported by a 9.9% increase in credit card uptake. Car finance also showed a robust performance, rising marginally from 7.1% to 7.4% in September. Household mortgage lending stabilised at a low 2.4%, lagging other indicators such as our latest FNB Estate Agents survey that has shown signs of increased activity in the residential property market. Nevertheless, we anticipate increased buying activity in the residential property market due to easing domestic uncertainty and lower borrowing costs.
Overall, when adjusted for inflation, PSCE experienced modest growth of 0.8% in September, marking the second consecutive month of expansion. This suggests an improving operating environment for consumers and businesses.
Producer inflation moderated further, reaching 1.0% y/y in September from 2.8% y/y in August, recording its lowest since June 2020. Producer prices declined by 0.3% m/m, the fourth successive month of declining prices, reflecting a 5.0% and 4.6% monthly decline in petrol and diesel prices, respectively. Excluding petroleum-related products, producer inflation was steady at 2.9%, its lowest since April 2020, but monthly pressure was 0.1%. Two items underpinned the moderation in producer inflation to 1.0% y/y: petrol and diesel, which declined sharply by 13.2% and 15.7%, respectively, and transport equipment, which remained in deflation. Food inflation lifted to 4.1% from 3.4%, with 0.9% monthly pressure. Notably, intermediate producer inflation, which measures prices of input goods, has steadily increased from a low of 0.4% y/y in May 2024 to 4.8% y/y in September 2024.
The trade balance recorded another surplus in September, reaching R12.8 billion, a notable improvement from the revised August surplus of R5.1 billion (initially R5.6 billion). This reflected a 3.5% monthly increase in exports to R170.7 billion, meanwhile imports declined 1.3% to R157.9 billion. The year-to-date trade surplus has measured R100.4 billion, 66% above the R60.4 trade surplus recorded over the same period last year. The 3Q24 trade balance data is expected to offer support to the current account balance, albeit to a lesser extent than in 2Q24.
Week ahead
On Thursday, gross foreign exchange reserves data for October will be released. In September, gross foreign exchange reserves rose to $63.6 billion, up from $63.2 billion in August. The increase was driven by a $498 million rise in gold reserves, which reached $10.7 billion, supported by higher gold prices. However, foreign exchange reserves saw a slight decline, reflecting payments made on behalf of the government.
Also on Thursday, data on electricity generated and available for distribution for September will be published. In August, production growth was 6.3% y/y, after rising by 8.5% in July. However, seasonally adjusted electricity production decreased by 0.7% m/m, after recording 1.3% growth in the previous month. Consumption revealed similar trends.
Tables
The key data in review
| Date | Country | Release/Event | Period | Act | Prior |
|---|---|---|---|---|---|
| 29 Oct | SA | Private Sector Credit Extension % y/y | Sep | 4.6 | 4.9 |
| 31 Oct | SA | PPI % m/m | Sep | -0.3 | -0.3 |
| SA | PPI % y/y | Sep | 1.0 | 2.8 | |
| SA | Trade Balance R billion | Sep | 12.8 | 5.1 |
Data to watch out for this week
| Date | Country | Release/Event | Period | Survey | Prior |
|---|---|---|---|---|---|
| 7 Nov | SA | Gross foreign exchange reserves $ billion | Oct | -- | 63.6 |
| SA | Electricity production % y/y | Sep | -- | 6.3 |
Financial market indicators
| Indicator | Level | 1 W | 1 M | 1 Y |
|---|---|---|---|---|
| All Share | 85,384.82 | -1.8% | -1.4% | 22.6% |
| USD/ZAR | 17.60 | -0.4% | 1.1% | -5.6% |
| EUR/ZAR | 19.19 | 0.4% | -0.5% | -2.7% |
| GBP/ZAR | 22.71 | -0.9% | -1.7% | 0.2% |
| Platinum US$/oz. | 994.52 | -3.4% | 0.0% | 6.1% |
| Gold US$/oz. | 2,743.97 | 0.3% | 3.0% | 38.3% |
| Brent US$/barrel | 73.16 | -1.6% | -0.5% | -16.3% |
| SA 10 year bond yield | 9.91 | -1.1% | 3.6% | -14.6% |
FNB SA Economic Forecast
| Economic Indicator | 2022 | 2023 | 2024f | 2025f | 2026f | 2027f |
|---|---|---|---|---|---|---|
| Real GDP %y/y | 1.9 | 0.7 | 1.0 | 1.9 | 1.9 | 2.2 |
| Household consumption expenditure % y/y | 2.5 | 0.7 | 1.4 | 2.3 | 2.1 | 2.4 |
| Gross fixed capital formation % y/y | 4.8 | 3.9 | -0.8 | 5.4 | 3.9 | 5.3 |
| CPI (average) %y/y | 6.9 | 6.0 | 4.5 | 4.3 | 4.7 | 4.5 |
| CPI (year end) % y/y | 7.2 | 5.1 | 3.4 | 5.0 | 4.6 | 4.5 |
| Repo rate (year end) %p.a. | 7.00 | 8.25 | 7.75 | 7.00 | 7.00 | 7.00 |
| Prime (year end) %p.a. | 10.50 | 11.75 | 11.25 | 10.50 | 10.50 | 10.50 |
| USDZAR (average) | 16.40 | 18.50 | 18.20 | 17.50 | 18.20 | 18.80 |
