sa economic trends and prospects

7/31/2019 Sa Economic Trends and Prospects

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South African EconomyRecent trends and prospects


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Recent economic trends:Economic growth has gained further momentum

Economic growth in South Africa gained further

momentum in the opening three months of 2010,

with real GDP growth measuring 4.6% on a

quarter-on-quarter (q-o-q) basis.

However, notwithstanding this positive growth

trend, real GDP growth only measured 1.6%

when compared to Q1 of 2009.

The improved performance in Q1 of 2010 was

underpinned by strong growth in the

manufacturing sector (8.4% q-o-q), although still

highly concentrated among a few sub-sectors, by

solid growth in the mining sector (15.4%), as well

as by improved activity in the trade (3.3%) and

transport (2.4%) sectors.

The construction sector continued to reportpositive growth, albeit at a substantially lower

rate than in preceding quarters as lower fixed

investment has weighed quite heavily on the

level of building and construction activity.

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-6

-4

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0

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4

6

8

Q1 Q22005

Q3 Q4|

Q1 Q22006

Q3 Q4|

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1

%C

hange(q-o-q)

Source: SARB


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Recent economic trends:A mixed performance at the sectoral level

The first quarter of 2010 witnessed a mixed performance at the sectoral level, with the mining and manufacturing sectors

posting the strongest rebounds, whilst growth moderated in the construction sector.

Figures in brackets in the above graph refer to the sectors percentage share of total GDP at basic prices in Q1 of 2010 (constant 2005 prices).

-20 -15 -10 -5 0 5 10 15 20

Agriculture (2.3)

Mining (6)

Manufacturing (17)

Electricity (2.2)

Construction (3.6)

Trade (13.2)

Transport (10.1)

Finance (23.7)

Government (15.3)

Other services (6.5)

Total GDP

% Change (q-o-q) seasonally adjusted at an annualised rate

2010 Q1

2009 Q4

2009 Q3

2009 Q2

Source: Stats SA


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Recent economic trends: Manufacturing sectorshowing gradual signs of improvement

The manufacturing sector is showing signs of

recovery. Relatively solid growth

performances have been reported since Q3 of

2009 (when measured on a q-o-q basis), albeit

from rather low bases.

Nonetheless, compared to a year earlier,

growth in manufacturing GDP was negative

throughout 2009, with the sectors output

contracting by 10.7% for the year as a whole.

Subsequently, it posted 3.1% growth (year-on-

year) in Q1 of 2010.

However, the sectors recovery remains

concentrated in a few of its sub-sectors such

as the automotive industry, basic iron and

steel, as well as the chemicals sub-sector,

and also off very low bases.

The manufacturing sectors growth

momentum is likely to ease in coming months

as indicated by a decline in the purchasing

managers index (PMI) and a moderation in

confidence levels.-25

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-10

-5

0

5

10

15

1

|

3 5 7

2005

9 11 1

|

3 5 7

2006

9 11 1

|

3 5 7

2007

9 11 1

|

3 5 7

2008

9 11 1

|

3 5 7

2009

9 11 1

|

3 5

%C

hange

(y-o-y

)

Volume of production (monthly)

Manufacturing GDP (quarterly)

Source: Stats SA


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Recent economic trends: Mining sector has benefitedfrom stronger global demand

The mining sector has experienced a sturdyrecovery, albeit limited to a number of its sub-sectors, following contractions in 2008 and2009 as the worlds most severe crisis in 70years took its toll on global demand.

External demand has been the key driverbehind the turnaround in some of the

segments of the mining sector. Globally, crude steel production increased by

32% over the period January to April 2010,when compared to the same period in 2009.

Hence the solid performance of the local ironore, manganese and nickel segments since thebeginning of 2010.

The platinum group metals (PGMs) sub-sector

has benefitted from stronger global anddomestic demand due to the revival of theautomotive industry.

Gold production continued on a decliningtrend, with South Africa having dropped to 4thplace in the global rankings.

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-30

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0

10

20

30

40

50

Total

mining

Gold Iron ore Chrome Copper Manganese PGM Nickel Other

metallicminerals

Coal Building

materials

Other non-

metallicminerals

%

Change(y-o-y)

2008 2009 2010 Q1

Source: Stats SA

77.6% 65.8%

61.4%


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Recent economic trends:Retail sector still under strain

Retail trade sales declined by 3.6% in real terms in

2009, although the rate of contraction moderated

towards the latter part of the year and growth

turned positive more recently.

Spending on items such as hardware, paint and

glass dropped sharply by 18.2% in 2009, as

consumers cut back on home refurbishments,

whilst the residential property market remained

depressed.

Consumer expenditure on the above mentioned

items contracted further in the opening months of

2010, whilst spending on furniture and appliances,

pharmaceutical products, as well as textiles,

clothing, footwear and leather products gained

momentum.

In April 2010, retail trade reported relatively strong

growth of 3.2% on an annual basis, following more

than one year of substantial contractions or weak

growth figures.-10

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0

5

10

15

20

1

|

3 5 7

2005

9 11 1

|

3 5 7

2006

9 11 1

|

3 5 7

2007

9 11 1

|

3 5 7

2008

9 11 1

|

3 5 7

2009

9 11 1

|

3

%C

hange(y-o-y)

Source: Stats SA


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Recent economic trends:Household debt remains high

A revival of consumer spending, both

locally and abroad, is of paramount

importance to support the economic

recovery on a sustainable basis.

Domestically, the outlook for consumer

spending is perhaps less than satisfactory

since households remain highly indebted,

with the debt-to-disposable income ratio

still at all-time highs.

However, demand for new credit remained

subdued over the past year and the sharp

drop in interest rates lead to a significant

decline in the ratio of debt-servicing costs

to the disposable income of households.

Going forward, consumers will be more

inclined to continue deleveraging rather

taking on new debt. Thus, household

spending is expected to remain rather

subdued in 2010.

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1981

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2005

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2008

2009

2010

De

bt-serv

icera

tio

(%)

De

btto

disposa

bleincomera

tio

(%)

Household debt ratio (Lhs)

Debt-service ratio (Rhs)

Source: SARB, IDC calculations

Long-term average

Debt-service ratio (%)


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8

Recent economic trends: Continued employment losses,with a few sectoral exceptions

Although 89 000 new jobs were created in Q4of 2009, the economy lost 870 000 jobs in itsformal and informal segments last year.

Moreover, a further 171 000 people lost theirjobs between December 2009 and March 2010.Most of these employment losses werereported in the financial services sector (126

000 job losses), construction (64 000), trade(48 000) and manufacturing (33 000).

All other main sectors of the economymanaged to create additional employment inQ1 of 2010, although employment levels in themining sector remained unchanged relative tothose reported in the final quarter of 2009.

South Africas unemployment rate rose to25.2% by March 2010, from 24.3% in Q4 of2009, representing more than 4.3 millionunemployed people.

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0

50

100

150

Agricul-ture

Mining Manufac-turing

Electri-city

Construc-tion

Trade Transport Finance Govt. &Com.

services

House-holds

Num

ber

('000)

2009 Q1 2010

Source: Stats SA

Total number of job losses in 2009 = 870 000.

In Q1 of 2010 a further 171 000 job losses.


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Recent economic trends:Business confidence higher, but moderating

After having recovered considerably in thepreceding quarter, business confidence fellacross all sectors surveyed in Q2 of 2010.

According to respondents to the BER survey,weaker demand, both globally and domestically,has underpinned this decline.

Concerns over the future pace of the globaleconomic recovery have re-surfaced due torising fears of a debt crisis in the Eurozone andthe impact of associated fiscal austerity.

Nonetheless, new vehicle dealers (motor trade)in particular have reported sharply higherconfidence levels more recently.

The building sector is still taking strain as theresidential property market remains quite

subdued. Although confidence levels in manufacturing

have improved, these are still at fairly lowlevels. Moreover, the improvement is not yetbroad-based, as it is highly concentrated in thetransport and base metals sub-sectors.

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20

30

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50

60

70

Retail trade Wholesaletrade

Motor trade Buildingcontractors

Manufacturing Total BCI

Index

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010Source: BER


10/1610

Recent economic trends:Consumer prices trending downward

Inflationary pressures continued abatingtowards the end of 2009 and in the openingmonths of 2010, underpinned by weak domesticdemand and by favourable inflation trendsglobally.

Moreover, consumer inflation dipped below the6% upper-band of the Reserve Banks target

range in recent months. It measured 5.7% inFebruary 2010 and declined to 4.6% by May, withexpectations of a further moderation in comingmonths.

A deceleration in consumer goods pricescontributed to the downward trend in overallconsumer inflation, whilst services inflation,which captures largely administered prices, isstill rising at a pace that exceeds the target

ceiling. The global crude oil price has fallen from an

average of USD85 per barrel in April to currentlevels of around USD75. This trend, along with afirmer currency, has helped to containinflationary pressures on the producer andconsumer fronts.

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2005

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2006

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2007

9 11 1

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3 5 7

2008

9 11 1

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3 5 7

2009

9 11 1

|

3 5

%C

hange(y-o-y)

CPI : Targeted inflation

Goods

Services

Source: Stats SA

Targeted inflation measure: CPIX until Dec '08, Headline inflation since Jan '09


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Recent economic trends: Rand strength has beeneroding export competitiveness

The South African rand strengthened

considerably during the course of 2009 and

in the opening months of 2010.

The currency appreciated to an average

level of R7.64 per US dollar by June 2010,

compared to R8.05 in June last year.

Against the euro, the rand strengthened by17.3% over the year to June 2010, averaging

R9.34 for the month, compared to a much

weaker level of R11.30 a year ago.

Factors contributing to the currencys

strengthening included lower current

account deficits, increased foreign capital

inflows instigated by the carry trade in

pursuit of higher investment returns, as well

as rising commodity prices.

The economic recovery domestically and a

rather benign inflation outlook also

contributed to the rands appreciation.

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

RandperUSdollar

Source: Bloomberg

The Rand traded atR8.60 to the USDon 11 Sept 2001

Rand's near free-fallafter 9/11-event

12 July 2010R7.61 / USD


12/1612

Economic outlook: Global prospects improved,but downside risks have risen

The pace of economic recovery globally has been betterthan initially anticipated, but has varied widely from aregional perspective.

GDP growth in advanced economies is expected to berather sluggish in 2010 and 2011, although it was recentlyrevised upwardly by the International Monetary Fund to2.6% for 2010 (2.3% previously).

However, economic prospects in the advanced worldcould be constrained by high levels of public debt and theassociated fiscal austerity measures, as well as by highrates of unemployment in many countries.

Emerging economies are forecast to expand at a fairly fastpace, mainly driven by strong internal demand.

China is expected to continue growing rapidly in 2010 onthe back of a rebound in exports and stronger domestic

demand. A slight moderation in growth is projected for2011 due to credit control measures aimed at preventing abuild-up of excessive capacity.

Downside risks to the global economic recovery not onlyremain high but have escalated, particularly in advancedeconomies, with serious concerns over a sovereign debtcrisis and real economy implications.

Economic growth and outlook around the globe

Region / Country 2008 2009 2010 2011

World output 3.0 -0.6 4.6 4.3

Advanced Economies 0.5 -3.2 2.6 2.4

United States 0.4 -2.4 3.3 2.9

Euro area 0.6 -4.1 1.0 1.3

Germany 1.2 -4.9 1.4 1.6

France 0.1 -2.5 1.4 1.6

Italy -1.3 -5.0 0.9 1.1

Spain 0.9 -3.6 -0.4 0.6

Japan -1.2 -5.2 2.4 1.8

United Kingdom 0.5 -4.9 1.2 2.1

Emerging and developingeconomies

6.1 2.5 6.8 6.4

Sub-Saharan Africa 5.5 2.2 5.0 5.9

Central and eastern Europe 3.1 -3.6 3.2 3.4

Russia 5.6 -7.9 4.3 4.1

Developing Asia 7.7 6.9 9.2 8.5

China 9.6 9.1 10.5 9.6

India 6.4 5.7 9.4 8.4

Western Hemisphere 4.2 -1.8 4.8 4.0

Brazil 5.1 -0.2 7.1 4.2Mexico 1.5 -6.5 4.5 4.4Source: IMF, WEO - July 2010

Projections2010 2011


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As the domestic economy recovers, demand forimported products will expand, particularly capitalgoods for investment purposes and, eventually,consumer items.

Import demand for capital goods is anticipated toremain strong due to the massive public sectorbuild programme over the next few years.

A revival in consumer spending could also result inincreased demand for imported items such asmotor vehicles, as well as a range of otherhousehold products.

The global economic recovery should see increaseddemand for South African goods, particularlycommodities, whilst certain locally-producedmanufactures could also experience increased

foreign demand. The local automotive industry is expected to report

a substantial improvement in vehicle exports during2010. According to NAAMSA, vehicle exports areprojected to rise at a rapid pace of up to 30% during2010, provided the global economic recoveryremains on track.

Economic outlook: SAs balance of payments toremain under pressure

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1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

BoP:Rbillion

%o

fGDP

Current account balance (R bn)

% of GDP

Source: SARB, IDC forecasts

Forecast


14/1614

Economic outlook:SA interest rates and inflation

A rather benign inflation outlook is forecast for

the remainder of 2010, with consumer inflation

averaging 5.4%, but accelerating towards the

latter part of the year.

Of concern are the impact of rising administered

prices, such as the electricity tariff hikes

scheduled for the period 2010 to 2012.

Substantial wage settlements well in excess ofinflation will also exert upward pressure on

prices if not accompanied by productivity

improvements.

The rather sluggish recovery of the domestic

economy should, however, keep demand-pull

inflation in check.

A rise in global crude oil prices could potentially

pose upside risks, but may be cushioned by arelatively strong currency for some time.

Rising concerns over a double-dip recession in

parts of the industrialised world and its impact

on the SA economy, have raised market

expectations of a further repo rate cut.0

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2003Q1

2003Q3

2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

2012Q1

2012Q3

2013Q1

2013Q3

2014Q1

2014Q3

Reporate(%)

CPI:%

Change(y-o-y

)

Repo rate

CPI: Targeted inflation measure

Source: SARB, Stats SA, IDC forecasts

Forecast


15/1615

Economic outlook: SA GDP growth to remain subduedin 2010, accelerating thereafter

Barring a deterioration of the economic

environment internationally, domestic growth is

projected at 2.8% in 2010, with a gradual

improvement in the growth outlook over the

remainder of the forecast period.

Consumer spending will show modest growth in

2010 (2%), but should gain momentum over the

period 2011 to 2014.

Private sector fixed investment activity is

expected to remain under pressure in 2010,

whilst public sector capex will expand at a fairly

robust pace.

Exports are forecast to rebound, albeit from a

very low base. Key export sectors such as

motor vehicles, iron and steel, as well as certain

commodities are likely to report relativelystronger export growth.

As economic growth gradually accelerates,

demand for imports is projected to rise,

particularly due to continued investment activity

by public corporations.-6

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1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Percen

tage

Other (e.g.Govt, &

Inventories)

Net exports

Fixedinvestment

Consumerspending

Total GDPgrowth

Source: SARB, IDC forecasts

Forecast


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Industrial Development Corporation

19 Fredman Drive, Sandown

PO Box 784055, Sandton, 2146

South Africa

Telephone (011) 269 3000

Facsimile (011) 269 2116

E-mail [email protected]

Thank you

sa economic trends and prospects

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