1.14 South Africa: PMI, Manufacturing Production, Mining Production, and Retail Sales

addition to the high consumer prices induced by the war in Ukraine, headline inflation climbed further due to drought. Similar to other non-resource-rich countries, Ethiopia and Kenya are characterized by a widening current account deficit mimicking the surge in import bills for fuel, fertilizer, and food. The government deficits nudged down but remain elevated, as revenue collection continued to be slack for Ethiopia. By contrast, economic activity picked up in Mozambique and Mauritius, growing 3.7 and 5.8 percent, respectively. Growth in Mozambique stemmed from the increase in coal and aluminum output thanks to high global demand and high prices. Mauritius benefited from the recovery in tourism assisted by progress made with a high rate of vaccination. A similar pattern is seen in the Seychelles with a leap in growth from 7.9 percent in 2021 to 11 percent in 2022.

High-Frequency Data Overall, incoming data point to persistent weakness in economic activity in the third quarter of 2022 amid the escalation of the conflict in Ukraine combined with fears of recession in the euro area and the United States, and subdued growth in China. At the subregional level, AFE countries are experiencing rising inflation above central bank targets. Central banks across the subregion have embarked on a tightening cycle of monetary policy, which in turn holds back economic activity.

In South Africa, the breakdown of inflation reveals that food and fuel prices were the key underlying drivers behind the rising inflation. The increase in the price of fuel jumped from 45.3 percent in June to 56.2 percent in July, contributing 0.5 percentage point to the increase in inflation. Rising food prices added 0.2 percentage point. Highfrequency data suggest that economic activity continues to disappoint in the third quarter after underperforming in the second quarter. Retail sales slipped for three consecutive months, 1.2, 0.4, and 0.1 percent (month over month) in May, June, 0 and July, respectively (figure 1.14). The slowdown in industrial production was associated with a contraction in manufacturing production by 0.2 percent (month over month). The rebound in mining production (2.3

FIGURE 1.14: South Africa: PMI, Manufacturing Production, Mining Production, and Retail Sales (net balance)

70 80 60 60 50 40 40 20 30 0 20 –20 10 –40 –60

Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22 Jul-22

Index m-m % change SA Absa Manufacturing PMI Volume of Manufacturing Production (RHS) (m-m % change, seasonally adjusted) Retail Sales (RHS) (m-m % change, seasonally adjusted) Mining Production Index (RHS), seasonally adjusted, m-m % change Sources: Statistics South Africa; Haver Analytics, 2022. Note: Consumer confidence is expressed as a net balance derived as the percentage of respondents expecting an improvement less the percentage expecting a deterioration. m-m = month-over-month; PMI = Purchasing Managers’ Index; SA = South Africa. Economic activity continues to be weak in the third quarter of 2022, on account of a slippage in retail for three consecutive months.