SA: An economic thermometer
25 September 2012 | FELICITY DUNCAN
Labour unrest has shaken the foundations of South
African society, the rand has bounced up and down by about 30 cents
against the dollar, and various pieces of economic data have jumped in
unexpected directions.
Given all this, now seems like a good moment to pause and take stock of the economy. Human beings are emotional creatures, after all, and it’s easy for us to get caught up in the headlines and to miss what’s really going on.
For example, the events at Lonmin’s Marikana mine can seem very frightening and discouraging.
However, the truth is that the mining crisis, while tragic, is not a decisive economic event – the overall direction of South Africa’s economy is a function of far more than a few incidents of labour unrest, and the mining crisis alone would be a poor guide to investment behaviour.
Hopefully, by calmly taking stock of things we can avoid making investment decisions that are based in fear rather than in fact. Let’s take a look at some hard measures of SA’s economy, then, and what they suggest about the future.
The real news
The last few weeks have seen several important pieces of economic news and data released.
For a start, Statistics South Africa reported that consumer price inflation accelerated slightly in August, to 5% year-on-year from July’s 4.9%.
This was in line with market expectations, and means that despite food and fuel price increases, South Africa’s CPI remains comfortably within the 3-6% target band.
Analysts expect inflation to rise next year, but for the moment it’s comfortably contained, which is very encouraging.
In another (somewhat) comforting piece of news, the FNB/BER Consumer Confidence Index edged higher in the third quarter of this year to -1, after falling sharply from +5 in the first quarter to -3 in the second. Although the index is still in negative territory and low by historical standards, this improvement nevertheless represents some firming of consumer sentiment.
This improvement in the state of consumers is backed up by the fact that so far this year, individual civil summonses for debt have declined by 7.7% and civil judgments by 9.5%.
This is also backed up by the emergence of some good news on the employment front; according to Stanlib economist Kevin Lings, in its Quarterly Employment Survey Stats SA announced that ‘‘formal (non-agricultural) employment in SA rose by a more encouraging 42 000 jobs in Q2 2012 (following) a rise of only 4 000 in Q1 2012.’’ Although employment is still not growing fast enough to solve the country’s unemployment problem, the improvement is positive.
Of course, there’s a dark cloud inside every silver lining.
Although employment firmed in the second quarter, income growth didn’t follow suit; gross employee earnings rose by 8.9% in Q2 compared with 9.6% in Q1.
This is admittedly still higher than inflation, but does indicate that growth in consumer income is slowing.
Perhaps even more worryingly, consumer spending growth slowed to a quarterly 2.9% in Q2, down from 3.1% in Q1 and 5% in 2011, and growth in consumer debt outstripped growth in income for the quarter. Underscoring this, retail sales grew by a tepid 4.2% in July, down from June’s 8.6%. Given SA’s reliance on consumer spending (which accounts for 60% of GDP) and the likelihood of future interest rate increases, this is pretty worrying.
Rounding off the bad news on a macro level, South Africa reported an unexpectedly large current account deficit in the second quarter.
According to the Reserve Bank, the country’s current account deficit hit 6.4% of GDP in Q2, up sharply from Q1’s 4.9% – this surprise jump was a major factor in the rand’s recent volatility and highlights the country’s vulnerability to foreign portfolio flows.
On the back of all this news, coupled with SA’s uninspiring GDP growth performance, the Reserve Bank announced last week that it would be keeping interest rates unchanged.
The move came as no surprise, and reflects current uncertainty about the future; the Reserve Bank is trying to balance slow growth and high unemployment with risks to inflation from external shocks and rand weakness.
So what does all this data, and the bank’s decision mean? Well, in a nutshell, it means that South Africa’s economic outlook remains more or less unchanged since before the mining crisis.
– felicity@moneyweb.co.za
Given all this, now seems like a good moment to pause and take stock of the economy. Human beings are emotional creatures, after all, and it’s easy for us to get caught up in the headlines and to miss what’s really going on.
For example, the events at Lonmin’s Marikana mine can seem very frightening and discouraging.
However, the truth is that the mining crisis, while tragic, is not a decisive economic event – the overall direction of South Africa’s economy is a function of far more than a few incidents of labour unrest, and the mining crisis alone would be a poor guide to investment behaviour.
Hopefully, by calmly taking stock of things we can avoid making investment decisions that are based in fear rather than in fact. Let’s take a look at some hard measures of SA’s economy, then, and what they suggest about the future.
The real news
The last few weeks have seen several important pieces of economic news and data released.
For a start, Statistics South Africa reported that consumer price inflation accelerated slightly in August, to 5% year-on-year from July’s 4.9%.
This was in line with market expectations, and means that despite food and fuel price increases, South Africa’s CPI remains comfortably within the 3-6% target band.
Analysts expect inflation to rise next year, but for the moment it’s comfortably contained, which is very encouraging.
In another (somewhat) comforting piece of news, the FNB/BER Consumer Confidence Index edged higher in the third quarter of this year to -1, after falling sharply from +5 in the first quarter to -3 in the second. Although the index is still in negative territory and low by historical standards, this improvement nevertheless represents some firming of consumer sentiment.
This improvement in the state of consumers is backed up by the fact that so far this year, individual civil summonses for debt have declined by 7.7% and civil judgments by 9.5%.
This is also backed up by the emergence of some good news on the employment front; according to Stanlib economist Kevin Lings, in its Quarterly Employment Survey Stats SA announced that ‘‘formal (non-agricultural) employment in SA rose by a more encouraging 42 000 jobs in Q2 2012 (following) a rise of only 4 000 in Q1 2012.’’ Although employment is still not growing fast enough to solve the country’s unemployment problem, the improvement is positive.
Of course, there’s a dark cloud inside every silver lining.
Although employment firmed in the second quarter, income growth didn’t follow suit; gross employee earnings rose by 8.9% in Q2 compared with 9.6% in Q1.
This is admittedly still higher than inflation, but does indicate that growth in consumer income is slowing.
Perhaps even more worryingly, consumer spending growth slowed to a quarterly 2.9% in Q2, down from 3.1% in Q1 and 5% in 2011, and growth in consumer debt outstripped growth in income for the quarter. Underscoring this, retail sales grew by a tepid 4.2% in July, down from June’s 8.6%. Given SA’s reliance on consumer spending (which accounts for 60% of GDP) and the likelihood of future interest rate increases, this is pretty worrying.
Rounding off the bad news on a macro level, South Africa reported an unexpectedly large current account deficit in the second quarter.
According to the Reserve Bank, the country’s current account deficit hit 6.4% of GDP in Q2, up sharply from Q1’s 4.9% – this surprise jump was a major factor in the rand’s recent volatility and highlights the country’s vulnerability to foreign portfolio flows.
On the back of all this news, coupled with SA’s uninspiring GDP growth performance, the Reserve Bank announced last week that it would be keeping interest rates unchanged.
The move came as no surprise, and reflects current uncertainty about the future; the Reserve Bank is trying to balance slow growth and high unemployment with risks to inflation from external shocks and rand weakness.
So what does all this data, and the bank’s decision mean? Well, in a nutshell, it means that South Africa’s economic outlook remains more or less unchanged since before the mining crisis.
– felicity@moneyweb.co.za
