Domestic economic recovery slow but steady
Economic data for April indicates that the recovery in the domestic economy remains on track, despite some negative data and global concerns around the turmoil in sovereign debt markets.
Daryll Owen, Chief Investment Officer at BoE Private Clients, says that the sovereign debt crisis, currently limited to Greece but in danger of spreading to other Eurozone countries as governments start withdrawing fiscal stimulus and reducing supportive fiscal policy and budget deficits, is largely confined to developed economies.
“Looking at government debt as a percentage of GDP, it is readily apparent that emerging economies, including South Africa, are much less indebted than many of the developed economies. Emerging market borrowers thus pose a much lower credit risk to lenders than some of their more developed peers,” he says.
He notes, that, as a result, the IMF predicts that emerging markets will grow much faster than their developed market counterparts.
During April the FTSE/JSE All Share index for the month was fractionally lower but the All Bond index continued its strong run. Other economic data released during the month indicates that the latest CPI figure (for February) was slightly below market expectations but that credit conditions remain tight. It is expected that CPI will continue to pull back within the target band, while interest rates are unlikely to change over the next twelve months.
The latest Sake24 and BoE Private Clients' provincial barometers (for March) support the view that the domestic economy is experiencing a slow but steady recovery, with the Free State and Gauteng economies now catching up with the Eastern and Western Cape, which were the first to turn around.
The barometers are compiled by Economists.co.za economist Mike Schüssler from various time series data used to measure economic activity in these four provinces.
The Gauteng Barometer for March rose by an impressive 4.6% compared to March 2009. The Western Cape Barometer was 3.5% higher, while the indices for the Eastern Cape and Free State rose by 1.3% and 1% respectively.
Economists.co.za economist Gillian Findlay says that the manufacturing sector in all provinces performed well and that generally higher activity levels in all provinces was also influenced by an increase in Government spending. She notes that ‘economic stress’ levels are down in all four provinces
“The barometers’ economic stress indices, which measure negative factors like interest rates, inflation and unemployment, were between 3% and 7% lower on an annualised basis in all the provinces. This means that pressure on businesses is gradually starting to ease, and although the provincial economies remain in poor health, that it is slowly but surely becoming easier to do business,” she says.
Owen notes that, despite the indications of an economic recovery, equity markets are unlikely to show significant growth in the year ahead.
“Given the strong run in equities from March 2009 to date, we believe that equities have largely discounted the economic recovery and therefore we expect only moderate returns from listed shares for 2010,” he concludes.
