South Africa economy to rebound

Lower commodity prices will remain a challenge for South Africa's mining sector, while the lingering threat of a strike in gold mining is a key near-term downside risk. The available activity data for Q3 so far are limited to just car sales and the PMIs, but these were on the weak side in electricity supply having stabilised, the Markit whole-economy PMI is likely to have risen slightly to 50.8 (July: 48.9) in August, says Barclays. 

"South Africa's economy is expected to rebound, although this is likely to be modest at 1.6% and 2.3% q/q saar in the final two quarters, consecutively. However, the downside surprise in Q2, combined with the forecasts for H2, lowers our full-year forecast to 1.5% from 1.8%, estimates Barclays. 

While power cuts continued into July, recent weeks have seen some stabilisation in the national power grid, which could provide some lift to energy-intensive sectors, although other news flow, particularly in the steel sector, remains negative. 

"Although the SARB will be concerned about the inflationary effects of the recent ZAR depreciation, the deterioration in the growth story will only heighten its policy dilemma. As such, we see some risks that the 25bp rate that we expect in November could be delayed. The behaviour of the rand and of oil prices in the next couple of months will likely be critical to the MPC's decision", added Barclays.