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7/31/2019 Sa Economic Trends and Prospects
1/16
South African EconomyRecent trends and prospects
7/31/2019 Sa Economic Trends and Prospects
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2
Recent economic trends:Economic growth has gained further momentum
Economic growth in South Africa gained further
momentum in the opening three months of 2010,
with real GDP growth measuring 4.6% on a
quarter-on-quarter (q-o-q) basis.
However, notwithstanding this positive growth
trend, real GDP growth only measured 1.6%
when compared to Q1 of 2009.
The improved performance in Q1 of 2010 was
underpinned by strong growth in the
manufacturing sector (8.4% q-o-q), although still
highly concentrated among a few sub-sectors, by
solid growth in the mining sector (15.4%), as well
as by improved activity in the trade (3.3%) and
transport (2.4%) sectors.
The construction sector continued to reportpositive growth, albeit at a substantially lower
rate than in preceding quarters as lower fixed
investment has weighed quite heavily on the
level of building and construction activity.
-8
-6
-4
-2
0
2
4
6
8
Q1 Q22005
Q3 Q4|
Q1 Q22006
Q3 Q4|
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1
%C
hange(q-o-q)
Source: SARB
7/31/2019 Sa Economic Trends and Prospects
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3
Recent economic trends:A mixed performance at the sectoral level
The first quarter of 2010 witnessed a mixed performance at the sectoral level, with the mining and manufacturing sectors
posting the strongest rebounds, whilst growth moderated in the construction sector.
Figures in brackets in the above graph refer to the sectors percentage share of total GDP at basic prices in Q1 of 2010 (constant 2005 prices).
-20 -15 -10 -5 0 5 10 15 20
Agriculture (2.3)
Mining (6)
Manufacturing (17)
Electricity (2.2)
Construction (3.6)
Trade (13.2)
Transport (10.1)
Finance (23.7)
Government (15.3)
Other services (6.5)
Total GDP
% Change (q-o-q) seasonally adjusted at an annualised rate
2010 Q1
2009 Q4
2009 Q3
2009 Q2
Source: Stats SA
7/31/2019 Sa Economic Trends and Prospects
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4
Recent economic trends: Manufacturing sectorshowing gradual signs of improvement
The manufacturing sector is showing signs of
recovery. Relatively solid growth
performances have been reported since Q3 of
2009 (when measured on a q-o-q basis), albeit
from rather low bases.
Nonetheless, compared to a year earlier,
growth in manufacturing GDP was negative
throughout 2009, with the sectors output
contracting by 10.7% for the year as a whole.
Subsequently, it posted 3.1% growth (year-on-
year) in Q1 of 2010.
However, the sectors recovery remains
concentrated in a few of its sub-sectors such
as the automotive industry, basic iron and
steel, as well as the chemicals sub-sector,
and also off very low bases.
The manufacturing sectors growth
momentum is likely to ease in coming months
as indicated by a decline in the purchasing
managers index (PMI) and a moderation in
confidence levels.-25
-20
-15
-10
-5
0
5
10
15
1
|
3 5 7
2005
9 11 1
|
3 5 7
2006
9 11 1
|
3 5 7
2007
9 11 1
|
3 5 7
2008
9 11 1
|
3 5 7
2009
9 11 1
|
3 5
%C
hange
(y-o-y
)
Volume of production (monthly)
Manufacturing GDP (quarterly)
Source: Stats SA
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5
Recent economic trends: Mining sector has benefitedfrom stronger global demand
The mining sector has experienced a sturdyrecovery, albeit limited to a number of its sub-sectors, following contractions in 2008 and2009 as the worlds most severe crisis in 70years took its toll on global demand.
External demand has been the key driverbehind the turnaround in some of the
segments of the mining sector. Globally, crude steel production increased by
32% over the period January to April 2010,when compared to the same period in 2009.
Hence the solid performance of the local ironore, manganese and nickel segments since thebeginning of 2010.
The platinum group metals (PGMs) sub-sector
has benefitted from stronger global anddomestic demand due to the revival of theautomotive industry.
Gold production continued on a decliningtrend, with South Africa having dropped to 4thplace in the global rankings.
-40
-30
-20
-10
0
10
20
30
40
50
Total
mining
Gold Iron ore Chrome Copper Manganese PGM Nickel Other
metallicminerals
Coal Building
materials
Other non-
metallicminerals
%
Change(y-o-y)
2008 2009 2010 Q1
Source: Stats SA
77.6% 65.8%
61.4%
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Recent economic trends:Retail sector still under strain
Retail trade sales declined by 3.6% in real terms in
2009, although the rate of contraction moderated
towards the latter part of the year and growth
turned positive more recently.
Spending on items such as hardware, paint and
glass dropped sharply by 18.2% in 2009, as
consumers cut back on home refurbishments,
whilst the residential property market remained
depressed.
Consumer expenditure on the above mentioned
items contracted further in the opening months of
2010, whilst spending on furniture and appliances,
pharmaceutical products, as well as textiles,
clothing, footwear and leather products gained
momentum.
In April 2010, retail trade reported relatively strong
growth of 3.2% on an annual basis, following more
than one year of substantial contractions or weak
growth figures.-10
-5
0
5
10
15
20
1
|
3 5 7
2005
9 11 1
|
3 5 7
2006
9 11 1
|
3 5 7
2007
9 11 1
|
3 5 7
2008
9 11 1
|
3 5 7
2009
9 11 1
|
3
%C
hange(y-o-y)
Source: Stats SA
7/31/2019 Sa Economic Trends and Prospects
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7
Recent economic trends:Household debt remains high
A revival of consumer spending, both
locally and abroad, is of paramount
importance to support the economic
recovery on a sustainable basis.
Domestically, the outlook for consumer
spending is perhaps less than satisfactory
since households remain highly indebted,
with the debt-to-disposable income ratio
still at all-time highs.
However, demand for new credit remained
subdued over the past year and the sharp
drop in interest rates lead to a significant
decline in the ratio of debt-servicing costs
to the disposable income of households.
Going forward, consumers will be more
inclined to continue deleveraging rather
taking on new debt. Thus, household
spending is expected to remain rather
subdued in 2010.
2
4
6
8
10
12
14
16
20
30
40
50
60
70
80
90
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
De
bt-serv
icera
tio
(%)
De
btto
disposa
bleincomera
tio
(%)
Household debt ratio (Lhs)
Debt-service ratio (Rhs)
Source: SARB, IDC calculations
Long-term average
Debt-service ratio (%)
7/31/2019 Sa Economic Trends and Prospects
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8
Recent economic trends: Continued employment losses,with a few sectoral exceptions
Although 89 000 new jobs were created in Q4of 2009, the economy lost 870 000 jobs in itsformal and informal segments last year.
Moreover, a further 171 000 people lost theirjobs between December 2009 and March 2010.Most of these employment losses werereported in the financial services sector (126
000 job losses), construction (64 000), trade(48 000) and manufacturing (33 000).
All other main sectors of the economymanaged to create additional employment inQ1 of 2010, although employment levels in themining sector remained unchanged relative tothose reported in the final quarter of 2009.
South Africas unemployment rate rose to25.2% by March 2010, from 24.3% in Q4 of2009, representing more than 4.3 millionunemployed people.
-350
-300
-250
-200
-150
-100
-50
0
50
100
150
Agricul-ture
Mining Manufac-turing
Electri-city
Construc-tion
Trade Transport Finance Govt. &Com.
services
House-holds
Num
ber
('000)
2009 Q1 2010
Source: Stats SA
Total number of job losses in 2009 = 870 000.
In Q1 of 2010 a further 171 000 job losses.
7/31/2019 Sa Economic Trends and Prospects
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Recent economic trends:Business confidence higher, but moderating
After having recovered considerably in thepreceding quarter, business confidence fellacross all sectors surveyed in Q2 of 2010.
According to respondents to the BER survey,weaker demand, both globally and domestically,has underpinned this decline.
Concerns over the future pace of the globaleconomic recovery have re-surfaced due torising fears of a debt crisis in the Eurozone andthe impact of associated fiscal austerity.
Nonetheless, new vehicle dealers (motor trade)in particular have reported sharply higherconfidence levels more recently.
The building sector is still taking strain as theresidential property market remains quite
subdued. Although confidence levels in manufacturing
have improved, these are still at fairly lowlevels. Moreover, the improvement is not yetbroad-based, as it is highly concentrated in thetransport and base metals sub-sectors.
0
10
20
30
40
50
60
70
Retail trade Wholesaletrade
Motor trade Buildingcontractors
Manufacturing Total BCI
Index
Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010Source: BER
7/31/2019 Sa Economic Trends and Prospects
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Recent economic trends:Consumer prices trending downward
Inflationary pressures continued abatingtowards the end of 2009 and in the openingmonths of 2010, underpinned by weak domesticdemand and by favourable inflation trendsglobally.
Moreover, consumer inflation dipped below the6% upper-band of the Reserve Banks target
range in recent months. It measured 5.7% inFebruary 2010 and declined to 4.6% by May, withexpectations of a further moderation in comingmonths.
A deceleration in consumer goods pricescontributed to the downward trend in overallconsumer inflation, whilst services inflation,which captures largely administered prices, isstill rising at a pace that exceeds the target
ceiling. The global crude oil price has fallen from an
average of USD85 per barrel in April to currentlevels of around USD75. This trend, along with afirmer currency, has helped to containinflationary pressures on the producer andconsumer fronts.
0
2
4
6
8
10
12
14
16
18
1
|
3 5 7
2005
9 11 1
|
3 5 7
2006
9 11 1
|
3 5 7
2007
9 11 1
|
3 5 7
2008
9 11 1
|
3 5 7
2009
9 11 1
|
3 5
%C
hange(y-o-y)
CPI : Targeted inflation
Goods
Services
Source: Stats SA
Targeted inflation measure: CPIX until Dec '08, Headline inflation since Jan '09
7/31/2019 Sa Economic Trends and Prospects
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Recent economic trends: Rand strength has beeneroding export competitiveness
The South African rand strengthened
considerably during the course of 2009 and
in the opening months of 2010.
The currency appreciated to an average
level of R7.64 per US dollar by June 2010,
compared to R8.05 in June last year.
Against the euro, the rand strengthened by17.3% over the year to June 2010, averaging
R9.34 for the month, compared to a much
weaker level of R11.30 a year ago.
Factors contributing to the currencys
strengthening included lower current
account deficits, increased foreign capital
inflows instigated by the carry trade in
pursuit of higher investment returns, as well
as rising commodity prices.
The economic recovery domestically and a
rather benign inflation outlook also
contributed to the rands appreciation.
0
2
4
6
8
10
12
14
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
RandperUSdollar
Source: Bloomberg
The Rand traded atR8.60 to the USDon 11 Sept 2001
Rand's near free-fallafter 9/11-event
12 July 2010R7.61 / USD
7/31/2019 Sa Economic Trends and Prospects
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Economic outlook: Global prospects improved,but downside risks have risen
The pace of economic recovery globally has been betterthan initially anticipated, but has varied widely from aregional perspective.
GDP growth in advanced economies is expected to berather sluggish in 2010 and 2011, although it was recentlyrevised upwardly by the International Monetary Fund to2.6% for 2010 (2.3% previously).
However, economic prospects in the advanced worldcould be constrained by high levels of public debt and theassociated fiscal austerity measures, as well as by highrates of unemployment in many countries.
Emerging economies are forecast to expand at a fairly fastpace, mainly driven by strong internal demand.
China is expected to continue growing rapidly in 2010 onthe back of a rebound in exports and stronger domestic
demand. A slight moderation in growth is projected for2011 due to credit control measures aimed at preventing abuild-up of excessive capacity.
Downside risks to the global economic recovery not onlyremain high but have escalated, particularly in advancedeconomies, with serious concerns over a sovereign debtcrisis and real economy implications.
Economic growth and outlook around the globe
Region / Country 2008 2009 2010 2011
World output 3.0 -0.6 4.6 4.3
Advanced Economies 0.5 -3.2 2.6 2.4
United States 0.4 -2.4 3.3 2.9
Euro area 0.6 -4.1 1.0 1.3
Germany 1.2 -4.9 1.4 1.6
France 0.1 -2.5 1.4 1.6
Italy -1.3 -5.0 0.9 1.1
Spain 0.9 -3.6 -0.4 0.6
Japan -1.2 -5.2 2.4 1.8
United Kingdom 0.5 -4.9 1.2 2.1
Emerging and developingeconomies
6.1 2.5 6.8 6.4
Sub-Saharan Africa 5.5 2.2 5.0 5.9
Central and eastern Europe 3.1 -3.6 3.2 3.4
Russia 5.6 -7.9 4.3 4.1
Developing Asia 7.7 6.9 9.2 8.5
China 9.6 9.1 10.5 9.6
India 6.4 5.7 9.4 8.4
Western Hemisphere 4.2 -1.8 4.8 4.0
Brazil 5.1 -0.2 7.1 4.2Mexico 1.5 -6.5 4.5 4.4Source: IMF, WEO - July 2010
Projections2010 2011
7/31/2019 Sa Economic Trends and Prospects
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As the domestic economy recovers, demand forimported products will expand, particularly capitalgoods for investment purposes and, eventually,consumer items.
Import demand for capital goods is anticipated toremain strong due to the massive public sectorbuild programme over the next few years.
A revival in consumer spending could also result inincreased demand for imported items such asmotor vehicles, as well as a range of otherhousehold products.
The global economic recovery should see increaseddemand for South African goods, particularlycommodities, whilst certain locally-producedmanufactures could also experience increased
foreign demand. The local automotive industry is expected to report
a substantial improvement in vehicle exports during2010. According to NAAMSA, vehicle exports areprojected to rise at a rapid pace of up to 30% during2010, provided the global economic recoveryremains on track.
Economic outlook: SAs balance of payments toremain under pressure
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-80
-40
0
40
80
-14
-12
-10
-8
-6
-4
-2
0
2
4
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
BoP:Rbillion
%o
fGDP
Current account balance (R bn)
% of GDP
Source: SARB, IDC forecasts
Forecast
7/31/2019 Sa Economic Trends and Prospects
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Economic outlook:SA interest rates and inflation
A rather benign inflation outlook is forecast for
the remainder of 2010, with consumer inflation
averaging 5.4%, but accelerating towards the
latter part of the year.
Of concern are the impact of rising administered
prices, such as the electricity tariff hikes
scheduled for the period 2010 to 2012.
Substantial wage settlements well in excess ofinflation will also exert upward pressure on
prices if not accompanied by productivity
improvements.
The rather sluggish recovery of the domestic
economy should, however, keep demand-pull
inflation in check.
A rise in global crude oil prices could potentially
pose upside risks, but may be cushioned by arelatively strong currency for some time.
Rising concerns over a double-dip recession in
parts of the industrialised world and its impact
on the SA economy, have raised market
expectations of a further repo rate cut.0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
2003Q1
2003Q3
2004Q1
2004Q3
2005Q1
2005Q3
2006Q1
2006Q3
2007Q1
2007Q3
2008Q1
2008Q3
2009Q1
2009Q3
2010Q1
2010Q3
2011Q1
2011Q3
2012Q1
2012Q3
2013Q1
2013Q3
2014Q1
2014Q3
Reporate(%)
CPI:%
Change(y-o-y
)
Repo rate
CPI: Targeted inflation measure
Source: SARB, Stats SA, IDC forecasts
Forecast
7/31/2019 Sa Economic Trends and Prospects
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Economic outlook: SA GDP growth to remain subduedin 2010, accelerating thereafter
Barring a deterioration of the economic
environment internationally, domestic growth is
projected at 2.8% in 2010, with a gradual
improvement in the growth outlook over the
remainder of the forecast period.
Consumer spending will show modest growth in
2010 (2%), but should gain momentum over the
period 2011 to 2014.
Private sector fixed investment activity is
expected to remain under pressure in 2010,
whilst public sector capex will expand at a fairly
robust pace.
Exports are forecast to rebound, albeit from a
very low base. Key export sectors such as
motor vehicles, iron and steel, as well as certain
commodities are likely to report relativelystronger export growth.
As economic growth gradually accelerates,
demand for imports is projected to rise,
particularly due to continued investment activity
by public corporations.-6
-4
-2
0
2
4
6
8
10
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Percen
tage
Other (e.g.Govt, &
Inventories)
Net exports
Fixedinvestment
Consumerspending
Total GDPgrowth
Source: SARB, IDC forecasts
Forecast
7/31/2019 Sa Economic Trends and Prospects
16/16
Industrial Development Corporation
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
Telephone (011) 269 3000
Facsimile (011) 269 2116
E-mail [email protected]
Thank you