SA could be clawing its way to better growth | Fin24
 
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SA could be clawing its way to better growth

Oct 10 2016 20:08
Carin Smith

Cape Town - The general economy could be at a stage where South Africa is slowly clawing its way back to better growth, Izak Odendaal,
investment strategist at Old Mutual Multi-Managers, told Fin24 on Monday.

Although data about the general economy in South Africa does not point to strong growth, it does point to things getting better, he said. On the whole, it appears the local economy is bottoming out and that is good news for companies with exposure to the local economy.

This is despite available economic data for the third quarter still making it difficult to draw hard and fast conclusions, he added.

"SA had a good second quarter gross domestic product (GDP) number. The third quarter economic data is mixed so far. For instance, the Barclays manufacturing purchasing managers’ index (PMI) unexpectedly slumped from 52.5 index points in July to 46.3 in August (with 50 index points separating growth from contraction)," said Odendaal.

"This was surprising, given that the PMI remained above the neutral level for the preceding five months. The PMI rebounded somewhat to 49.5 in September, but the average reading in the third quarter was below the second quarter average."

READ: PMI falls as shaky economy takes toll on private sector

He pointed out that, on a positive note, expectations for business conditions in six months’ time increased for the third straight month and are now at the highest level since early 2015.

The Standard Bank PMI, which covers the entire private sector (not just manufacturing), also showed a positive signal. The PMI rose above 50 index points for the first time since April last year, driven by an increase in new orders.

"Some parts of the economy are clearly still weak and will take time to recover. Consumers are clearly shying away from expensive purchases, with September new passenger car sales down 15% year-on-year. The IMF’s forecast is for the domestic economy to grow by only 0.1% this year and 0.8% next year," said Odendaal.

"This is much better than its outlook for fellow emerging market commodity producer Brazil, which is expected to contract by 3.3% this year but return to modest growth of 0.5% next year. However, it is probably on the pessimistic side."

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