As we head into February, the jury is still out on what the economic cost of the coronavirus will be for China, emerging markets and the rest of the world and how far its ripple effects will extend.
The index retreated almost two points to 45.2 index points – well below the 50 level that signifies the break-even level between an expanding and contracting economy. Most concerning in the results was the backlog of sales orders, which in January were at their lowest level in more than a decade. Absa pointed out this was another sign of low demand, the others being the still weak business activity and new sales orders indices.
The global oil market was in the grip of a demand shock last week, with China reducing its consumption of oil by three million barrels a day – the largest decline since the 2008 crisis. The oil price slid almost 4% last week to $58 and had come off 16% since China identified the virus. The OECD, already antsy about the state of global demand, is said to be contemplating having an emergency meeting this week to address the added impact of the epidemic on the already sluggish demand for oil.
The IMF added that non-resident investors were shedding equities and local currency bonds “but showing an appetite for foreign currency sovereign bonds amid supportive global financing conditions”. It concluded that South Africa’s external position is “moderately weaker” than implied by fundamentals.