SA economy still facing high risks
Mixed economic data reports released during June suggest a contradiction in economic activity and highlight the considerable risks still facing the SA economy, not least the impact of uncertain global recovery.
This is the view of Daryll Owen, Chief Investment Officer at BoE Private Clients. He notes that the SARB’s Quarterly Bulletin, which documents the expenditure side of the SA economy and which was released in June, showed surprisingly strong household consumption expenditure (HCE), but that, against this, manufacturing production fell 1.0% m/m and the PMI (Purchasing Manager’s Index) fell to 48.4 in June (from 51.1 in May and 55.2 in April).
“The SARB’s data confirmed our earlier concerns that the strong quarter on quarter growth in household consumption expenditure (HCE) was driven largely by government spending. In fact, while public corporations’ investment outlays grew at a robust rate, private sector investment spending and general government investment outlays actually declined during the quarter.
“Additionally, while private sector credit extension finally turned positive on a year on year basis recording a 0.8% expansion in May, M3 growth declined from 1.7% in April to 1.4% in May. The credit and money growth rates remain indicative of weakness in the SA economy and do not correspond with the picture painted by the Quarterly Bulletin’s more robust consumption growth rates,” he said.
Further evidence of mixed signals in the domestic economy is supplied by the Sake24 and BoE Private Clients provincial barometers for May, which show that, although the economies of the four provinces on which the barometers focus grew year on year, a number of negative factors remain in play.
Mike Schüssler, chief economist at Economists.co.za and compiler of the barometers - which measure business activity levels in Gauteng, the Western Cape, the Eastern Cape and the Free State - says that chief amongst these factors is unemployment.
“Various economists have pointed out the dangers of the so-called jobless growth that South Africa is currently experiencing. According to Stats SA, the official unemployment rate was 25.2% in the first quarter, with only 12.8 millionpeople having jobs.
“In addition, concern about the shakiness of the global economic recovery largely contributed to the weaker domestic confidence levels, especially as many countries are making plans to scale down or are already scaling down last year's fiscal stimulus packages,” says Schüssler.
Owen agrees that concerns about the global economy will impact upon prospects for domestic economic growth.
“For the developed market economies the ability to grow will be challenged by both fiscal policy contraction and monetary policy tightening. While emerging markets, in contrast to the developed world, do not face the same concerning mix of challenges, the global economic outlook nevertheless remains uncertain.
“In the emerging markets, sovereign debt levels are much lower and as such, the risk of austerity measures that could potentially derail growth is much reduced. Banking sector balance sheets are generally in much better shape and therefore, lower interest rates can still stimulate normal economic activity.
“Despite the much rosier outlook for emerging markets, the uncertain global economic outlook will continue to impact upon the prospects for individual countries, including South Africa, and as a consequence we remain prudently neutral on equities” he concludes.
