Half Term Report on the ZA Economy

We are now into H2 of 2013, and we have recently been bombarded with an array of economic data. Are we in trouble; are we OK? ZA Confidential sought the views of some of our experts….

Expert Comment:

Ettienne Le Roux from RMB:

Most recent statistics suggest the pace of growth in real GDP accelerated slightly compared to the poor first quarter annualised rate of 0.9%. Still, for the year as a whole, growth should come in lower at around 2%, against last year’s 2.5%, and 3.5% in 2011.Consumers remain under pressure, companies are hesitant to invest, and growth in emerging markets – key trading partners of South Africa – is slowing. All the while, room for further fiscal and monetary policy relief domestically is limited. Interest rates are already at record low levels and public finances are stretched. The picture for this year is not rosy at all……

Craig Pheiffer from Absa Investments:

The South African economy is not an island and our current low rate of growth can partially be attributed to the slow rate of growth in the global economy. Slowing growth in China and recessionary conditions in Europe, two of the largest importers of our goods, have hurt exports and domestic manufacturing production. Slower global growth has also translated into a lower demand for commodities and commodity prices have fallen. That’s further hurt export revenues but it’s also made for less profitable mining production, mining closures and retrenchments. Lower domestic consumer confidence and business confidence in an uncertain global and domestic economic environment has meant that consumers have postponed purchases of big ticket items while business has postponed expansion and hiring plans – adding to the general slowdown. The highly indebted nature of households has exacerbated the situation in that even in a historically low interest rate environment, consumers are running out of capacity to borrow more (and hence demand more goods and services). The result is that the production side of the economy is weak (mining and manufacturing) and the consumption side (household demand) is weak. With the country running a substantial current account deficit as well as an on-going budget deficit, there is little room for government to stimulate demand through looser fiscal policy (a chief concern of the ratings agencies). It is unlikely that lower domestic interest rates will have a significant impact on demand either. Growth forecasts for SA are being revised lower across the board and it seems we will only get some respite once the global economy picks up pace again. We need to have our house in order then to benefit from that uptick, when it eventually comes.

Gerhard Lampen from Sanlam iTrade:

Our economic indicators point to a sluggish economy. The PMI is still above 50, but only just. Slowing vehicle sales point to slower retail sales, always an early indicator. Our trade deficit and Balance of Payments are still in dangerous territory. On the other side of the coin, we had a lower inflation number, but only because of a petrol price decrease. With the increases in June and July it is pretty certain we will overshoot the 6% upper band. This will be temporary, though. There is nothing the SARB can do. It cannot cut, as CPI is at the upper band of the CPI bands. The currency and wage demands pose a threat to inflation. It cannot increase rates because the economy is losing traction. Rates will be on hold until both CPI and GDP recover, probably in 2015.

Hein Kruger from Kruger International:

I am most worried about something that everybody is trying to forget about – and that is the household debt to disposable income ratio of 75,4% at a time when imported inflation on the back of a deteriorating rand is fast eating into the shrinking living cost budget of the average consumer, with Bernanke’s looming rising interest rate threatening to knock a large part of middle class South Africans out of the ring – with Banks inheriting excess properties and cars instead of outstanding payments. The government will also lose a large part of its 80% income base when this starts to happen. This is what happened in the USA in October 2007, and in Europe in 2009.


There seems to be sense of realism that the economy is not buoyant, but is not in deep trouble either. Q2 2013 must show some signs of dynamism, or this will not be a year to remember, with any fondness anyway.

Tweet of the Day:

Sanlam Intelligence (@sanlamintel): “A committee is a cul-de-sac down which ideas are lured and then quietly strangled.” Sir Barnett Cocks


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