Highlights. Contact. The key data in review. Date Country Release/event Period Actual Prior

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1 1 April 216 Contact Mamello Matikinca Economist Jason Muscat Industry Analyst Jarred Sullivan Economist Jarred Highlights SA: Mining production posts dismal year-on-year figures, although gold production rebounds. SSA: Headline inflation in west Africa continues to push higher. Global: Eurozone is officially out of deflation, while US inflation figures slow. The key data in review Date Country Release/event Period Actual Prior Apr 13 SA Retail sales () Feb Apr 1 UK BOE rate decision Apr.. Apr 1 Eurozone CPI () Mar -.2 Apr 1 US CPI () Mar.9 1 Apr 1 SA Mining production () Feb Apr 1 China GDP () 1Q Content 1 Data in review 2 SA 3 SSA Global Week Ahead 6 Forecasts Financial Market Indicators Close 1-week 1-month 1 Year All Share Index % 1.% 1.% USD/ZAR 1..7% 8.9% -21.2% EUR/ZAR % 7.6% -28.3% GBP/ZAR % 8.9% -16.1% Platinum US$/oz %.6% -1.8% Gold US$/oz % -2.% 2.1% Brent US$/oz % 6.9% -29.% SA year bond yield Source: I-Net, FNB (data as at Thursday s close) 1

2 South African Economy Consumer resilience was the story of the week with both consumer confidence and retail trade sales improving. The FNB/BER consumer confidence index rebounded from 1 in Q1 to 9 in 1Q16. The improvement was broad-based with all sub-indices apart from the rating of the present time to buy durables improving. The improvement was largely attributed to the end of load-shedding, an 87c/l drop in the fuel price over the six months to March and fewer student protests which all helped lift sentiment. Importantly though, the index remains well below the neutral zero mark and suggests further slowing in household consumption. With the impact of electricity tariff hikes, tax changes, rising inflation and interest rates yet to be felt, it is unlikely that there will be any meaningful improvements in the index in the coming quarters. Retail trade sales data for February corroborated the improved sentiment amongst consumers, rising by.1. The above consensus acceleration was aided by February 216 having an extra trading day (leap year), but also demonstrates the resilience of South African consumers. General dealer sales expanded. but we suspect that retailers may be sacrificing some margin in order to maintain sales momentum and market share. Retailers of pharmaceuticals and cosmetics increased sales by 7.8, and appear to be benefitting from Figure 1: FNB / BER Consumer confidence changing consumer buying patterns i.e. less spend on durable goods freeing up money to purchase small indulgences. Clothing sales also improved by.2% but furniture sales contracted, albeit marginally, by.1%. As with consumer confidence we expect retail sales to slow as we approach the second half of the year, but remain positive throughout. Mining production volumes fell by 8.7 in February, making it six months of contraction in a row, and almost certainly means the sector will detract from GDP in 1Q16. The big detractors were a 32. contraction in iron ore production, a 6.9% fall in copper and a 18.1% drop in the production of platinum group metals (PGMs). Gold production rose by 11.1%, likely on the back of rand weakness. With many shafts being put on care and maintenance as a result of soft demand and subdued pricing, the trend is likely to continue for much of the year. Labour stoppages hold significant downside risk to our already gloomy outlook for the sector. South Africa s chamber of commerce and industry s (SACCI) trade conditions for March improved to from 1 in February. This is the eleventh consecutive month that the reading has been below fifty and suggests that respondents are expecting difficult trading conditions to persist for the balance of the year. Figure 2: Retail trade sales Index Q 3Q7 1Q 3Q12 1Q1-8 Consumer confidence index Jan-9 Sep- May-12 Jan-1 Sep-1 Sources: Reuters, FNB Total retail sales 2

3 Sub-Saharan Africa Headline inflation in west Africa continues to push higher. In Ghana it seems inflation is nearing its peak and correct policy responses will help improve the inflation outlook. In contrast Nigeria s unorthodox policy stance remains the main cause of higher inflation. In Nigeria, It is undeniable that the forex restrictions are impacting on inflation. Granted tariff increases which were implemented in February may have also propped up the inflation rate, but the increases were broad based with the exception of hotels and restaurants and core inflation jumped to 12.2% y/y. Headline inflation soared to 12.8 in March from 11.% in February. The steep rise in inflation over 1Q16 supports further tightening of monetary policy. While measures soon to be adopted to diversify forex reserves to the yuan may offer a temporary reprieve, we believe devaluation is inevitable. Nigeria continues to avoid the devaluation of its currency. The government decided to allow banks and businesses to conclude transactions in yuan - around 7% of imports to Nigeria are from China. As a result, a significant portion of Nigeria s forex reserves will be converted into yuan. While this may offer a temporary boost to the economy and alleviate pressure on the naira in the short-term, it certainly is not enough to avoid a naira devaluation. While still very short on detail, it appears Nigeria has Figure 3: Nigeria headline inflation opted for cheaper sources of funding and plans to issue a US$6bn yuan denominated bond which will finance some of its infrastructure projects. Officials also alluded to the possibility of selling Samurai bonds. In Ghana, headline inflation rose in March, reaching a high of 19.2 after moderating to 18. in February. Food inflation remained unchanged at 8.%y/y while non-food inflation climbed 2.7% from 2.% in February, reflecting the lagged effects of tariff increases. We maintain our view of a moderation in the inflation rate this year, the stability of the cedi combined with aggressive rate hikes supports our view of an improvement in the inflation outlook. Figure : Ghana headline inflation Headline inflation Sources: Reuters, FNB Headline inflation 3

4 Global Snapshot US Inflation was down from last month recording a.9 increase in March, compared to a 1 increase in February. On a monthly basis inflation rose by.1% in March, less than the expected increase of.2% m/m. While there were rebounds in the gasoline price, this was partly offset but declines in food costs, as well as medical care and housing costs. There was a marginal increase in core CPI (stripping out food and electricity costs) of.1% m/m in March, but this was the smallest increase since August last year. These inflation figures come after Janet Yellen s recently dovish tone towards interest rate hikes this year. With muted inflation figures and weak retail sales numbers hinting at slowing economic growth, it is likely that we will see rate hikes pushed out to the second half of the year. China GDP met expectations and grew at 6.7% y/ y in 1Q16. The outcome was marginally lower than the 6.8% recorded in the previous quarter and was the slowest quarterly rate of growth in 7 years. Nonetheless, there were pockets of growth such as increased investment in infrastructure and industrial assets of.7% in 1Q16 relative to last year. Services continued to drive overall growth with a 7.6% increase in 1Q. Consumer spending also remained firm, with retail sales jumping. in March compared to.2 in February, and a significant jump in industrial output of 6.8 in March from. in February further highlighting the resilience of the Chinese growth path. Notably, Figure : China GDP the IMF s revision of 216 GDP growth to 6.% from 6.3% highlights a positive outlook for what lies ahead. In order for China to maintain the path of expansion, it is likely that we will see further stimulus measures taking place to support the economy - most likely infrastructure investment to create positive externalities amongst various sectors. It is likely that this growth may be supported in the first half of the year through the relatively low inflation numbers in the US and the dovish tone taken by Janet Yellen on the interest rate hiking cycle. Eurozone inflation rose to in March from a downwardly revised -.2 in February. Energy prices contracted further limiting the rise in headline inflation. Compared to the 8.1 recorded in February, energy prices fell by -8.7 in March. Although the Eurozone is officially out of deflation territory, the impact of monetary policy stimulus is not yet fully evident with ten of the bloc s countries reporting negative inflation figures. With this in mind, continual price declines can postpone big purchases, excluding necessities, in the anticipation that they will be cheaper in the future placing pressure on businesses to reduce costs in order to make profits. With headline inflation well below the 2% target, the ECB has room to provide stimulus and improve the inflation outlook. Figure 6: US inflation Source: Reuters, FNB

5 The Week Ahead Local All eyes on inflation Next week sees the release of tourist accommodation statistics for February, the land transport survey, civil cases for debt, building statistics and the all important March inflation number. We anticipate a good increase in the tourist accommodation statistics given the strong rebound in foreign tourist arrivals. The industry is also likely to receive a further boost from domestic tourists who are opting to holiday locally rather than abroad due to the depreciation of the rand. Freight payload volumes have been under pressure largely due to drought induced contractions in the transportation of agricultural goods, and lower mining goods volumes. The 8.7% contraction in mining volumes for February suggests that the month will be another poor one for the transport sector. Finally, the March inflation print will be eagerly watched as exchange rate pass-through from a weak rand appears to have accelerated materially over the past three months. The jump from 6.2 in January to February s 7% is unlikely to be repeated, we expect a slight moderation in headline inflation to 6.9 in March, but would not be surprised by a print a marginally above 7% on the back of higher food prices and a weakening rand. We expect inflation to peak in Q16 necessitating a further incremental bps of rate hikes this year. Data to watch out for this week... Date Country Release/event Period Survey Prior Apr 1 US Industrial output (% m/m) Mar Apr 18 SA Tourist accommodation () Mar Apr 2 SA CPI (%y/y) Mar - 7 Apr 2 Japan Trade balance (JPY bn) Mar Apr 21 UK Retail sales () Mar. 3.8 Apr 21 Eurozone ECB rate announcement Apr Source: Bloomberg ( Survey is the consensus forecast)

6 FNB SA Economic Forecasts Economic Indicator f 217f 218f Household consumption expenditure %y/y Government consumption expenditure %y/y Gross fixed capital formation %y/y Real GDP %y/y Total exports %y/y Total Imports %y/y Current account (% of GDP) CPI (average) %y/y CPI (year end ) %y/y Repo rate (year end) %p.a Prime (year end) %p.a USD/ZAR (average) Source: FNB 6

7 Disclaimer: The information in this publication is derived from sources which are regarded as accurate and reliable, is of a general nature only, does not constitute advice and may not be applicable to all circumstances. Detailed advice should be obtained in individual cases. No responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this publication is accepted by Firstrand Group Limited and / or the authors of the material. To visit the FNB Economics Blog paste the following link to your browser: 7

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