The business industry in South Africa has remained optimistic that trade conditions will improve in the next six months as expectations were buoyed by a more representative governance as per the outcomes of the general election.
The SA Chamber of Commerce and Industry (Sacci) yesterday said the Trade Activity Index (TAI) reached its best level in June as trade conditions recovered gradually after starting off from a depressed-level in 2024.
Sacci said the broader agreement by the Government of National Unity (GNU) on the need to address economic challenges collaboratively filtered through to the trade environment.
The Chamber said more stable energy supply, augmented by increased electricity generation by the public and private sectors and lower fuel consumption prices over the first six months of 2024 contributed positively to trade conditions.
Although trade conditions had a relatively lesser effect on employment conditions in this sector, 43% of respondents continued to hire staff while 40% of respondents are considering increasing employment in the next six months.
Sacci’s economist Richard Downing said although still in negative territory with 47% of respondents positive about prevailing conditions, the six-month expectations of respondents increased further, with 55% expecting trade conditions to improve.
“Important trade components like sales and new orders remained at improved-levels in May and June. Supplier deliveries were unchanged, with lower inventory-levels suggesting increased sales volumes. The expected increase in sales volumes, new orders, and supplier deliveries indicates the current optimism in the trade environment,” Downing said.
“Continuing high input costs were still prevalent, although sales prices were relatively stable. However, respondents expect that sales prices and input costs will rise over the next six months.
“This potential future trend of rising prices may uphold inflationary pressures and cause the SA Reserve Bank (Sarb) to delay its decision on an easier monetary stance and lower interest rates.”
The Sarb’s Monetary Policy Committee is expected to keep interest rates unchanged at 8.25% per annum tomorrow as inflation remains above the 4.5% midpoint of the 3-6% target range.
“We continue to pencil in a start to the easing cycle in November, although the risk is that the SA interest rate cutting cycle only begins in 2025,” said Investec economist, Lara Hodes.
“The next Federal Open Market Committee (FOMC) meeting on July 31 should give us a clearer view of when the US Federal Reserve (Fed) is likely to begin cutting rates,” she said.
There is a great deal of expectation of the first rate cut in four years later in the year as the Fed is also signalling a cut.
Fed chair Jerome Powell has indicated that US interest-rate cuts are likely on the horizon, leading to a bullish outlook for bonds in developed markets.
Although Powell didn’t specify a timeline, traders expect the first cut in September, followed by two more by year-end.
This has led to increased expectations for policy easing in various economies, including dropping rate hike bets in Australia, and easing tightening expectations in Japan.
Powell emphasised the Fed’s dual mandate of controlling inflation and supporting employment, noting recent data shows inflation cooling and the labour market stabilising, which may prompt rate cuts soon.
Meanwhile, Sacci said the latest data releases on several trade activities also confirmed the tight trade conditions that prevailed in the first six months of 2024.
Real activity in the wholesale and retail trade, hotels, and restaurants sector declined by 1.8% year on year in 2023, and decreased by a further 2.3% in the first quarter of 2024.
Retail trade volumes rose only slightly by 0.6% year on year in April, 2024.
New vehicle sales were 7.5% lower in the first half of 2024 than in the corresponding period of 2023. Merchandise import volumes were 9.1%, and merchandise export volumes 4.9% lower in the first five months of 2024 than in the corresponding period of 2023.
BUSINESS REPORT