Domestic economy gathers momentum

Despite differences between the various provinces, the overall South African economy is showing definite signs of improvement in line with the global trend for emerging markets. As a consequence, forecasts for GDP growth for the year have been revised upwards.

Daryll Owen, Chief Investment Officer at BoE Private Clients, says that the improvement can be seen in the most recent data for extension of credit to the private sector (PCSE), vehicle sales and business confidence.

“On a month-on-month basis, PSCE grew 0.6% during February after no growth in January. Retail sales declined unexpectedly in February, falling by 1.5% which was well below market expectations. With consumer confidence improving however we expect to see retail sales picking up in the months ahead. Vehicle sales continue to grow, albeit off a low base,” he says. “All of these indicators point to a gathering of momentum in the economy.

Owen suggests, however, that in view of the strong run in equities from March 2009 to date, equities are discounting a lot of good news and a fairly strong recovery. It therefore looks likely that we will see only moderate returns for listed shares for the balance of 2010.

With reference to the different provinces, the Sake24 and BoE Private Clients' latest provincial barometers show that the recovery has been strongest in the economies of the Eastern Cape, the Free State and the Western Cape, with Gauteng lagging behind the other provinces.

The barometers are compiled by Economists.co.za economist Mike Schüssler from various time series data to measure economic activity in the four provinces.

During February, the Gauteng barometer fell 0.9% year-on-year (y/y). By comparison, the Eastern Cape barometer rose by 7.2%, while the Free State barometer rose by 3.4%. The Western Cape barometer also showed a y/y decline of 2.2%, but a month-on-month increase of 1.3%.

Schüssler suggests that Gauteng residents have always been the most indebted consumers in the country and that it is taking them longer to emerge from the recession. He nevertheless maintains that, across the board, a slow recovery is in sight.

“The barometers clearly show that economic activity in all provinces has decreased significantly over the past 3 years, but that the downward trend seems to have turned the corner. The recovery will be slow, but there are signs that the recovery will be seen in virtually all economic sectors,” he concludes.