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Applause to government, but better days ahead for companies!

24 February 2010 Prof. Chris Harmse, Chief Economist, Dynamic Wealth

 

The Numbers

 

GDP Q4: (Year over Year) -1.4% vs -2.2% in Q3
GDP Q4: (QoQSAA) 3.2% vs 0.9% in Q3
GDP Q4: (QoQSA) 0.8% vs 0.2% in Q3
GDP 2009: (Year over Year) -1.8% vs 3.7% in 2008
QoQSAA – Quarter over Quarter Seasonal Adjusted and Annualised
QoQSA – Quarter over Quarter Seasonal Adjusted



 


Introduction

Whereas the government prevented a more pronounced recession in 2009, analysis shows that the private sector was mainly responsible for the stronger production growth momentum (QoQSAA) in Q4 of 2009. Regarding the beneficiaries of this production it seems that employees did better in terms of earnings compared to shareholders though both lost out last year.

The producers

Econometric analysis done by the African Institute of Economic Modeling (Afrinem) at the University of Pretoria shows that the economic contraction rate could have been -2.5% in 2009 (-1.8% actual) if government contained the consolidated budget deficit to 4% of GDP in 2009.

And if the deficit was contained to 4% of GDP in 2010, an economic growth rate of 0.9% is estimated compared to the national treasury’s projection of 2.3%.

The better growth outcome can be ascribed to general government who maintained year over year growth rates above 4% in each of the four quarters of 2009. This compensated somewhat for the destruction of value which occurred in the private sector (See Table 1).

Table 1

Year over Year change in Real production accounts

2009

PRODUCTION BY:

Q1

Q2

Q3

Q4

Private sector

-1.31

-3.60

-2.90

-2.04

General government

4.15

4.40

4.22

4.14

Total value added

-0.52

-2.46

-1.88

-1.15

However, QoQSAA estimates show that the private sector’s real growth momentum accelerated in Q4 to 2.9% from 0.8% in Q3. General government production increased at a faster pace of 7% compared to 4.9% in Q3. (Keep in mind that the private sector real production represents 76.1% of GDP and general government 13.6%).

Regarding the performances of the individual sectors, the manufacturing sector seems to be on its way to a path of recovery. However, this will only be sustainable if the world economy continues with its stronger growth performance.

Whereas Q1 numbers forecasted the manufacturing to shrink by 25.5% in 2009 (QoQSAA), it recovered to post a growth momentum rate of 7.6% in Q3 and 10.1% in Q4 to end the year only 10.7% smaller (compared to 2008). The mining sector ended the year 7.2% smaller after Q1 numbers suggested it may lose a third of its value (compared to 2008). Heartening is the acceleration in the growth momentum of two of the country’s largest sectors – transport & communication and finance, real estate & business services. The growth momentum in the transport and communication accelerated from 1.2% in Q3 to 1.9% in Q4, whereas the finance sector showed a growth momentum of 1.1% in Q4 following -1.5% in Q3. The construction sector also continued to grow albeit at a slower pace of 3.6% in Q4 (6.1% in Q3).

However, consumers remain under pressure as the retail sector lost further momentum (-0.7% in Q4) to post its seventh consecutive rate of deceleration. As such the retail sector contracted 2.9% in 2009 suggesting a loss of R6.4 billion in value compared to 2008.

The earners

Differentiating between employees and companies as the main beneficiaries of production, it is evident that companies suffered huge losses. Bearing in mind that real value added contracted 1.5% in 2009, real gross profits is estimated to have shrunk by 3.6% in 2009. Real remuneration is estimated to have been 0.7% higher than in 2008.

This changed the composition of employees and companies as earners of income expressed as a percentage of Value added. Both groups are estimated to have earned 50% of value added in 2009 with companies losing 1.2% over the course of the year (from 51.2% whereas employees gained from 48.8%).

However, it seems as if the loss in gross profits reached its peak in Q3 of 2009. Though the real year over year loss in gross profits is estimated to have been negative at -3.5% in Q4 it was substantially smaller than the -5.2% in Q3 of 2009. A return to positive growth in Q1 2010 is a real possibility.

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