Economic Report: February 2017

South Africa's annual headline inflation was recorded at January to 6.60% y/y, showing a slight reduction from 6.76% in December and below market expectations of a 6.70% increase. It was the highest inflation rate since February 2016 as costs increased at a faster pace for food and non-alcoholic beverages and housing and utilities. Year-on-year, costs increased less for: food and non-alcoholic beverages (11.4% from 11.7% in December 2016), alcoholic beverages and tobacco (3.5% from 5.5%), clothing and footwear (5.1% from 5.3%), recreation and culture (3.7% from 7.6%) and restaurants and hotels (6.2% from 7.1%). On a monthly basis, consumer prices went up 0.6% after a 0.4% gain a month earlier. Transport prices rebounded (+1.5% from -0.4% in December) and costs rose faster for food and non-alcoholic beverages (1.6% from 0.8%) and miscellaneous goods and services (0.8% from 0.1%). The South African Reserve Bank left its benchmark repo rate on hold at 7% at its January 2017 meeting, as widely expected, saying the near-term outlook for inflation has deteriorated and growth remains weak.

	Aug'16	Sep'16	Oct'16	Nov'16	Dec'16	Jan'17
CPI (y/y)	5.9%	6.1%	6.4%	6.6%	6.8%	6.6%
PPI (y/y)	7.2%	6.6%	6.6%	6.9%	7.1%	5.9%

Sources: SA Reserve Bank, Statistics SA, I-Net, BER, Trading Economics, MorningStar, Reuters

South Africa posted a trade surplus of R12.04 billion in December 2016, compared to an upwardly revised R1.68 billion deficit in November and well above market forecasts of a R6 billion surplus. Exports declined to R93 billion, mainly driven by lower sales of vehicles & transport equipment (-35%), machinery & electronics (-16%), precious metals & stones (-6%), base metals (-8%) and prepared foodstuff (-14%). By contrast, sales of vegetable products and mineral products rose 34% and 15% respectively. SA's major destinations for exports were China (11.5%), Germany (6.1%), the US (5.4%), Botswana (4.5%) and Japan (4.5%). Imports fell to R81 billion, as purchases declined for: machinery & electronics (-24%), equipment components (-53%), chemical products (-20%), base metals (-29%), textiles (-38%) and plastic & rubber (-30%). Meanwhile, mineral products imports rose 10%. Imports came mainly from China (16.9% of total imports), Germany (8.3%), Saudi Arabia (6.9%), the US (6.9%) and France (6.6%).

Considering the full year, the trade deficit in 2016 shrank to R2.92 billion compared to R52.18 billion in 2015, as exports went up 5.8% and imports grew at a much slower 1%.

	31 January 2015	31 January 2016	31 January 2017
USD/ZAR	11.63	15.86	13.47
GBP/ZAR	17.47	22.61	16.95
EUR/ZAR	13.14	17.21	14.54

Sources: SA Reserve Bank, Statistics SA, I-Net, BER, Trading Economics, MorningStar, Reuters

Locally, the ALSI was up a resounding 4.31% in rand terms. US foreigners invested in SA equities would have benefitted substantially as the ALSI returned 6.04% in USD as the rand strengthened against the US dollar in December. Resources led the gains on the ALSI, returning 10.74%, as commodity prices rallied in January. The Industrials index (excluding dual-listed companies) dragged on the gains of the ALSI, down 2.25%. A stark contrast to its December performance of 6.12% in ZAR. By market-cap, the Top 40 led the gains, rising 4.67% despite the rand strengthening against the US dollar. The rand, however, weakened against every other major currency in January. Small-cap stocks followed, increasing by 2.42%, Mid-caps returned 1.66% for the month.

Locally, the ALSI was up a resounding 4.31% in rand terms. US foreigners invested in SA equities would have benefitted substantially as the ALSI returned 6.04% in USD as the rand strengthened against the US dollar in December. Resources led the gains on the ALSI, returning 10.74%, as commodity prices rallied in January. The Industrials index (excluding dual-listed companies) dragged on the gains of the ALSI, down 2.25%. A stark contrast to its December performance of 6.12% in ZAR. By market-cap, the Top 40 led the gains, rising 4.67% despite the rand strengthening against the US dollar. The rand, however, weakened against every other major currency in January. Small-cap stocks followed, increasing by 2.42%, Mid-caps returned 1.66% for the month.