Economy in for a 'slow recovery'
11 June 2009
The South African economy is struggling, and there are few signs that the situation will improve in the immediate future, BoE Private Clients said on Wednesday.
"If I was a weather forecaster, I would say big dark clouds are hanging over the economy, while strong winds and freezing temperatures lambaste individual provinces," said Mike Schussler, economist and architect of the barometer project published monthly by BoE Private Clients.
However, BoE Private Clients noted in a statement that the JSE's all share index delivered 10.33% on a total return basis for May, and was finally in positive territory year-to-date.
This indicated a possible improvement in conditions in the second half of the year, it said.
The provincial barometers showed that the sharp downward trend of the past few months had continued in April, providing some perspective of the magnitude of the recession.
The barometers, which measure business activity levels in Gauteng, the Western Cape, Eastern Cape and Free State provinces, also highlighted the fact that the Eastern Cape economy was in much deeper trouble than the other provinces.
Auto industry woes
Economic activity in the private sector economy of Gauteng was 14.6% lower than in April last year. The Western Cape (-7.4%), Free State (-7.8%) and Eastern Cape (-17.1%) also continued their downward journey.
Gauteng and the Eastern Cape were the hardest hit owing to their respective exposure to the struggling vehicle manufacturing industry.
"Although there are no signs that the economy will lift its head in the near future, I think that activity levels would hit an all-time low in April and May," Schussler said.
"The barometers for April already show this, and I think May would see a similar trend."
Schussler expected the environment might bottom out in June, after which a slow recovery process would start.
Sectoral analysis
A sectoral analysis of the barometers showed that virtually all economic sectors had a dismal April, although the climate in the manufacturing, financial, real estate and business services sectors could not really be much worse.
The financial sector saw a massive decline in activity levels in April. In Gauteng, the decline was 21.1%; it was 25.9% in the Eastern Cape, 12.7% in the Free State and 11.5% in the Western Cape.
"The decline is the result of the crisis in the residential property market, where between 40% and 50% fewer properties were sold. This sector is really dead," said Schussler.
He added that the manufacturing sector was in a similar precarious position. Activity levels in Gauteng dipped by 14.8%, while the Eastern Cape slipped by 14.6%. The Free State (-6.4%) and Western Cape (-10.1%) also saw activity levels drop, but not as much as in the other two provinces.
"Manufacturing in Gauteng and the Eastern Cape suffered as a result of the downturn in the automotive manufacturing sector. This downward trend could be a prolonged one, as the outlook for the sector remains bleak," Schussler noted.
Consumer pressure 'abating'
Despite this grim picture, there were some signs that the pressure on consumers and businesses was slowly abating, he said.
"Stress factors, such as the interest rates and inflation, are declining, and this will alleviate the pressure on the economy.
"I expect that Gauteng will benefit the most from this, as the residents of this province have the most debt. "
He said a decline in interest rates and inflation should lead to an increase in consumer spending, which would inject life into the province's economy.
At the same time, the South African equity market showed positive gains during May, in line with emerging market generally, and supported the possibility of an economic recovery later in the year.
According to Daryll Owen, chief investment officer at BoE Private Clients, the market had had a good run but still seemed to be looking past current recessionary conditions to the expected improved conditions in the second half of 2009 and beyond.
"One should look for a conversion of positive sentiment indicators to actual spending, both locally and abroad, for confirmation that the economy has bottomed and is recovering," Owen said.
Sapa
