South African growth story turns positive

South Africa's economy is showing signs of improvement with recent data indicating positive growth prospects. Manufacturing activity has returned to expansionary territory, as reported by the Absa Purchasing Managers' Index. The trade account surplus has widened beyond expectations in June, providing relief to the rand. Additionally, electricity generation in the country has increased, signaling a brighter future for South Africa. Johann Els, Chief Economist at Old Mutual Group, expressed optimism about the current state of the economy and highlighted key areas of growth. Els noted that the availability of electricity has improved significantly, with a 72% reduction in lost gigawatt hours compared to the previous year. This improvement has contributed to a recovery in the Purchasing Managers' Index (PMI) and overall positive sentiment. The trade surplus has also played a crucial role in alleviating pressure on the currency, with expectations for a smaller current account deficit by the end of the year. The conversation shifted towards the impact of electricity production on the manufacturing sector. Despite weak numbers in mining and manufacturing production during months without load shedding, Els believes that growth forecasts for this year may not see significant changes. He emphasized the need for rate cuts by the Reserve Bank to stimulate consumer spending and economic growth. Els argued that lower underlying inflation supports a rate cut, and waiting for the Federal Reserve to act first should not be a determining factor. Regarding the Fed's monetary policy, Els shared his views on the likelihood of a rate cut in September. He pointed to slowing growth indicators in the US and the dovish stance from Fed Chair Jerome Powell as factors supporting a rate cut. Els also touched on the importance of load shedding mitigation efforts, highlighting the potential for improved economic growth once stability in electricity supply is achieved. The discussion expanded to include the impact of recent trade talks and South Africa's status under the African Growth and Opportunity Act (AGOA). Els expressed cautious optimism, noting that while the sentiment surrounding AGOA may influence markets, the economic impact may be relatively limited. He highlighted the importance of managing expectations and understanding the market's pricing of potential outcomes. In conclusion, Els shared his positive outlook on the new Trade Minister and the government's approach to engaging with markets. He acknowledged the maturity of South Africa's democracy and the positive outcomes of recent elections, signaling a more optimistic growth trajectory in the medium term. Overall, the economic data and expert analysis indicate a potential turnaround for South Africa's economy, with room for growth and stability in the coming months.