ECONOMIC TRENDS: Key trends in the South African economy · Gross Domestic Product • Conditions in the South African economy remain unsatisfactory. • The rate of decline in consumer
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ECONOMIC TRENDS:
Key trends in the South African economy
31 March 2014
Department of Research and Information
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
2
Overview 3
Gross domestic product 4
Gross domestic product
GDP growth at sectoral level
Sectoral composition of the South African economy
Real GDP growth by economic sub-sector
Domestic expenditure 6
Gross domestic expenditure
Final consumption expenditure by households
Final consumption expenditure by government
Gross fixed capital formation
Fixed investment by type of organisation
Inventories
Employment 8
Formal non-agricultural sector employment
Productivity and unit labour costs
Change in employment levels
Manufacturing sector 10
Manufacturing GDP and volume of production
Physical volume of production per sub-sector of manufacturing
Fixed investment and capacity utilisation
Utilisation of production capacity per sub-sector
Expectations regarding employment creation
Expectations regarding employment creation per sub-sector
Inflation and monetary aggregates 13
Consumer price inflation
Producer price inflation
Credit extension to the private sector
Interest rates and yields 14
Repo and prime overdraft rates
Inflation and interest rates
Long- and short-term yields
Capital markets 15
Johannesburg Securities Exchange performance
Shares traded on the JSE
Net portfolio purchases/sales by non-residents
Government finance 16
Budget balance
Government debt
Government savings
Exchange rates 17
The rand versus the US dollar and the euro
The rand versus other foreign currencies
Effective exchange rates of the rand
Balance of payments 18
Trade balance
Trade performance per sector
Current account of the balance of payments
Current account balance and financial flows
Total reserves and import cover
Composition of the export basket
Imports according to broad category
Key export destinations
Commodities 21
Commodity prices
Gold and platinum
Brent crude oil
Business cycle indicators 22
SARB business cycle indicators
BER business confidence indicators
BER/FNB confidence indicators
Miscellaneous indicators 23
Retail trade sales
New vehicles sales and exports
Building plans passed and buildings completed
Foreign direct investment
Liquidations of companies
Petrol price and crude oil prices
International indicators 25
World economic climate index
GDP growth in advanced economies
GDP growth in emerging economies
Equity market performance
Consumer price inflation
Interest rates
Glossary of terms 27
Note: An in a specific graph indicates % change at constant prices, at a seasonally adjusted and annualised rate. *
Table of contents
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
3
And
3
Signs of improvement in global economic activity are becoming
increasingly discernible and are strengthening the foundations for a
sustained, albeit somewhat uneven normalisation. After slowing slightly to
an estimated 3% in 2013, world GDP growth is expected to accelerate
this year towards the 3.7% mark.
Amongst the advanced economies, the United States experienced a
significant deceleration in its growth momentum to 1.9% in 2013 as
household consumption expenditure, fixed investment activity and export
performance moderated, while governmental spending and investment
contracted. The Eurozone emerged from its longest recession in the 2nd
quarter of 2013, but the regional economy still reported a 0.4%
contraction for the year as a whole. Japan, in turn, managed to expand its
gross domestic product by 1.7% in real terms, up from 1.4% in 2012,
supported by elements of its “three-arrow” economic policy.
The emerging markets and developing economies as a group posted
slight lower growth in 2013. China’s economy expanded by 7.7%,
substantially slower than the double digit rates of expansion recorded
over the past decade. Latin America and the Caribbean, as well as the
Middle East and North Africa region also reported more moderate rates of
expansion in 2013. In contrast, Sub-Saharan Africa elevated its growth
rate to a robust 5.1%, supported by rising global demand for its exports,
higher foreign direct investment inflows and domestic consumption.
World trade improved last year, with export volumes rising by 2.6%,
compared to 1.9% in 2012. The rebound in industrial activity has not
been even around the globe and neither have inflation trends, which were
generally downward in advanced economies but the opposite in several
emerging markets mostly due to sharply weaker currencies.
Global economic prospects are expected to improve, with higher real
GDP growth forecast for all major regions over the next two years,
although at an uneven pace. The advanced economies are projected to
make notably stronger contributions to world growth in 2014 and 2015,
led by the United States and to a lesser extent by a gradually recovering
Eurozone economy, while Japan’s growth rate may hold relatively steady
in the current year. The modest acceleration of economic activity
anticipated in emerging markets and developing economies in 2014 and
2015 will be rather uneven. China is expected to continue experiencing a
moderation in growth as it faces challenges in re-balancing its economy
from an export-led and fixed investment driven growth model to a more
balanced domestic demand composition. Rates of economic expansion
are forecast to accelerate considerably in India and Mexico, but may
remain quite modest in Brazil and could deteriorate visibly in Russia. The
medium-term growth outlook for Sub-Saharan Africa is strong, backed by
robust infrastructure investment and household consumption.
South Africa’s economy recorded a substantial deceleration in growth to
1.9% in 2013. This was underpinned by a combination of external factors
such as relatively weak global demand for its export products and
unfavourable commodity prices, as well as a difficult economic climate on
the home front. Supply-side disruptions, mostly but not exclusively due to
prolonged labour-related production stoppages in segments of the mining
and manufacturing sectors, aggravated an operating environment
characterised by more subdued household spending.
Consumer expenditure was adversely impacted by continued high levels
of household indebtedness, stricter lending practises by the banking
sector, decelerating growth in real disposable incomes, as well as
weaker confidence levels. Growth in final consumption expenditure by
households moderated to 2.6% in 2013, from 3.5% in 2012.
At sector level, growth has been slowing in all services-related sectors,
with retail and wholesale trade, as well as the finance and business
services sector particularly hard hit by the weakening economic
environment. The output of key mining sectors such as platinum group
metals and gold rebounded in 2013, albeit from very low bases,
whereas the iron ore segment posted sharply lower growth and coal
mining volumes contracted. The pace of expansion in manufacturing
GDP fell to 0.8% in 2013, from 2.1% in 2012, mainly due to production
losses associated with industrial action on the supply side and subdued
conditions both locally and abroad on the demand side.
A gradual improvement in fixed investment activity was, however,
observed. Higher rates of growth in fixed capital formation were
reported by the private sector, whilst investment outlays by the public
sector increased at a fairly modest rate. Nonetheless, fixed investment
growth remained well below the rates observed prior to the global
economic crisis, and surplus production capacity in several economic
sectors should limit expansion needs in the short- to medium-term.
The current account of the balance of payments deteriorated
substantially, as the deficit-to-GDP ratio widened to 5.8% in 2013, from
5.2% in 2012. The largest trade deficit in relation to GDP (2.2%) in more
than four decades was the key contributor. Other than a sub-optimal
export performance, import demand was fairly robust due to the high
import-intensity of investment activity and a sizeable inflow of crude oil
and refined petroleum products to meet energy requirements, whilst a
sharply weakening currency contributed to a rising import bill.
Consumer inflation resumed an uptrend in 2013, breaching the target
band in the 3rd quarter before subsiding in subsequent months. It
averaged 5.7% last year, propelled largely by higher fuel and electricity
prices. Despite rising inflation, the MPC kept the repo rate unchanged
throughout 2013, but raised it by 50 basis points at the end of January
2014 due to a worse inflation outlook on the back of rand weakness.
Employment in the non-agricultural formal sectors of the economy
expanded by just over 39 000 in 2013, mainly due to the expansion of
general government’s workforce. The unemployment rate stood at
24.1% by the end of the year, implying that 4.8 million people find
themselves without work.
Business confidence has remained low considering a very challenging
environment and weak economic growth prospects. However,
manufacturers expect an improvement in export demand and general
business conditions during the course of 2014.
The pace of economic expansion is indeed expected to improve to
some extent in 2014, with further acceleration in subsequent years.
The manufacturing sector is likely to benefit from increased demand for
its export products as conditions improve in external markets and a
weaker currency enhances their price competitiveness to a degree, at
least temporarily. Segments of the mining sector are already facing a
very challenging year due to continued industrial action.
Household spending is likely to be curtailed by factors such as high
consumer indebtedness, rising inflation and higher interest rates.
Private sector fixed investment is anticipated to rise modestly in 2014,
accelerating from 2015 onward as production capacity comes under
pressure. Investment spending by public corporations will expand at
more moderate rates as a number of large infrastructure projects near
completion. However, investment outlays by general government could
increase at a faster pace to meet rising social infrastructure needs.
Overview
Gross domestic product
Gross domestic product
GDP growth at sectoral level
Gross Domestic Product
• Real GDP growth moderated considerably to 1.9% in 2013,
from 2.5% in 2012, as a combination of global and domestic
factors took their toll on the South African economy.
• Protracted industrial action in various sub-sectors of mining
and manufacturing continued to constrain the supply side of
the economy. Manufacturing activity was also curtailed by
continued weak demand from the Eurozone, a key market for
South Africa’s manufactured exports. Mining output
rebounded, albeit from a very low base, with the production of
gold and platinum group metals (PGMs) recovering from the
massive contractions reported in 2012. However, growth in
iron ore output decelerated sharply, while coal mining
reported a contraction in production volumes.
• A worsening domestic consumer environment weighed
heavily on service-related sectors, with a moderation in
growth across all tertiary sub-sectors. The construction sector
showed encouraging signs of recovery.
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
4
Notes:
(i) Figures in brackets in the above graph refer to the sector’s percentage share of total GDP at basic prices (constant 2005 prices) in 2013
-8
-6
-4
-2
0
2
4
6
8
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
han
ge (
q-o
-q) *
Gross Domestic Product (GDP)
Source: IDC, compiled from SARB data
-4 -3 -2 -1 0 1 2 3 4 5
Agriculture (2.4)
Mining (5.6)
Manufacturing (16.9)
Electricity (1.9)
Construction (3.4)
Trade (14)
Transport (10.1)
Finance (24.2)
Government (15.3)
Other services (6.1)
Total GDP
% Change
Real GDP growth by main economic sector
2013
2012
Source: IDC, compiled from Stats SA data
Total GDP (at market prices)
in 2013 = R3 385 billion
Gross domestic product (cont.)
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
5
-2
-1
0
1
2
3
4
5
6
7
8
9
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
han
ge (
q-o
-q)*
Real GDP growth in service-related sectors
Source: IDC, compiled from Stats SA data
Services sectors include:
Electricity, Construction, Trade,
Transport, Finance, Government
and Other services.
-30
-25
-20
-15
-10
-5
0
5
10
15
20
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
han
ge (
q-o
-q)*
Real GDP growth in the manufacturing sector
Source: IDC, compiled from Stats SA data
-30
-20
-10
0
10
20
30
40
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
han
ge (
q-o
-q)*
Real GDP growth in the mining sector
Source: IDC, compiled from Stats SA data
-20
-15
-10
-5
0
5
10
15
20
25
30
35
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
han
ge (
q-o
-q)*
Real GDP growth in the agricultural sector
Source: IDC, compiled from Stats SA data
Agriculture, forestry & fishing
2.4%
Mining & quarrying9.2%
Manufacturing11.6%
Electricity, gas & water
3.0%
Construction3.7%
Wholesale & retail trade, catering &
accommodation16.6%Transport, storage &
communication
8.9%
Finance, insurance, real estate & business
services21.5%
Community, social & personal services
6.0%
General government17.1%
Sectoral composition of the South African economy in 2013
Source: IDC, compiled from Stats SA data
Note: Sector share according to GDP at basic prices (current prices)
Domestic expenditure
Gross domestic expenditure
Final consumption expenditure by households
Final consumption expenditure by government
• Weaker domestic spending largely underpinned slower
overall economic activity in 2013, especially during the 2nd
half of the year. Continued strained financial positions of
consumers resulted in a marked deceleration of household
spending in 2012 as well as in 2013.
• Government spending recorded q-o-q seasonally adjusted
increases of below 2%, further depressing total domestic
spending.
• Fixed investment spending recorded encouraging increases
during the 2nd and 3rd quarters, although this momentum was
halted in the 4th quarter as the impact of industrial action in
the automotive and mining sectors was felt.
• The import penetration ratio declined markedly in Q4 of 2013
as the impact of automotive strikes and the weaker currency
stifled demand domestically.
• Household consumption continued to expand at a slow pace,
recording only 2% growth in Q4 of 2013, with spending levels
on non-durable goods basically unchanged on a q-o-q
seasonally adjusted basis.
• Spending on durable goods remained the largest driver of
growth in household expenditure in Q4, although the rate of
expansion slowed to 6.9% on a q-o-q seasonally adjusted
basis.
• Spending on semi-durable goods expanded at a sharply
weaker pace of 3.1% in Q4 of 2013 after recording rates of
growth in excess of 7% in the preceding three quarters.
• The ratio of household debt to disposable income reached
74.3% in Q4 of 2013, the lowest level since Q3 of 2006, as
consumers continued to repair their balance sheets. South
African households thus prioritised debt reduction over new
spending in recent quarters.
6
• The counter-cyclical role played by government spending
started to wane during 2013, as the limited fiscal space
constrained its growth.
• Although the rate of increase in government consumption
expenditure slowed in 2013, as a percentage of GDP it
continued on an uptrend to 22.8%, the highest ratio to date.
• The public sector wage bill remains a concern, with the
Minister of Finance having indicated that attempts will be
made to limit its further expansion to 3.8% in the 2014/15
fiscal year. Doubts have, however, been raised over the
realism of such a budgetary projection.
• Considering the limited fiscal space, any increases in public
sector wages will necessitate reduced spending in other
areas, with the associated impacts.
22
24
26
28
30
32
34
-15
-10
-5
0
5
10
15
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Imp
ort
s:
% o
f G
DE
% C
han
ge (
q-o
-q) *
Gross Domestic Expenditure (GDE)
GDE (% change)
Imports as % of GDE
Source: IDC, compiled from SARB data
50
54
58
62
66
70
74
78
82
86
90
-8
-6
-4
-2
0
2
4
6
8
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Deb
t-to
-dis
po
sab
le in
co
me (
%)
% C
han
ge (
q-o
-q) *
Final consumption expenditure by households
Consumer spending (Lhs)
Household debt as % of disposableincome (Rhs)
Source: IDC, compiled from SARB data
17
18
19
20
21
22
23
-10
-5
0
5
10
15
20
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% S
hare
of
GD
P
% C
han
ge (
q-o
-q) *
Final consumption expenditure by government (FCEG)
Government spending (Lhs)
FCEG as % of GDP (Rhs)
Source: IDC, compiled from SARB data
Domestic expenditure (cont.)
Gross fixed capital formation
Fixed investment by type of organisation
Inventories
7
• Fixed investment reported a marked slowing during the 4th
quarter of 2013, bring to an end the upward momentum that
had been build up since the start of 2012. Nevertheless, a
4.7% rate of increase was still recorded in 2013.
• Although the ratio of fixed investment to GDP remained fairly
stable over the past four years at an average of around 19%,
the equivalent ratio for gross savings has been declining.
Consequently, the economy has become more reliant on
foreign capital to fund investment activity domestically.
• The strongest rates of increase in fixed investment recorded
in 2013 pertained to the manufacturing (11.4%), construction
(7.2%) and the electricity, gas and water (5.1%) sectors.
• Investment in the mining sector slowed to 1.7% in 2013 as
continued industrial action in conjunction with slowing global
demand for commodities derailed investment plans.
• Fixed investment by the private sector accelerated to 5.5% in
2013, from 3.9% in 2012.
• This contrasted with the deceleration in investment spending
by general government (3.5% in 2013, compared to 6.2% in
2012) as well as by public corporations (3.1% in 2013 vis-à-
vis 4.9% in the previous year).
• Slower investment spending by general government was due
to a contraction in economic services related investment,
although expenditure on social infrastructure increased
marginally after having contracted in 2012.
• With public sector infrastructure spending having reached its
peak, future growth in this area is expected to be limited,
while continued spare production capacity in the private
sector will also limit its investment activity in the short-term.
• The adverse impact of protracted industrial action in the
automotive industry, coupled with continued tensions in the
mining sector, were reflected in inventory reductions during
the 4th quarter of 2013.
• The abrupt decline in inventories during this quarter resulted
in the inventory change for 2013 as a whole being only
marginally positive.
• The sectors that reported increased inventories in 2013 were
mining as well as wholesale and retail trade, whereas the
manufacturing and agriculture sectors recorded lower
inventory levels.
• The ratio of industrial and commercial inventories to GDP
remained around the 13% level, still significantly below the
17% to 18% levels witnessed prior to the 2009 recession
year.
8
10
12
14
16
18
20
22
24
26
28
-16
-12
-8
-4
0
4
8
12
16
20
24
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% S
hare
of
GD
P
% C
han
ge (
q-o
-q) *
Gross fixed capital formation (GFCF)
GFCF (% change)
GFCF as % of GDP
Gross saving as % of GDP
Source: IDC, compiled from SARB data
-40
-30
-20
-10
0
10
20
30
40
50
60
Q1 Q2 Q32007
Q4|
Q1 Q2 Q32008
Q4|
Q1 Q2 Q32009
Q4|
Q1 Q2 Q32010
Q4|
Q1 Q2 Q32011
Q4|
Q1 Q2 Q32012
Q4|
Q1 Q2 Q32013
Q4|
% C
han
ge (
q-o
-q) *
Gross fixed capital formation
Government Public corporations
Private sector Total investment
Source: IDC, compiled from SARB data
110.1%72.9% 74.7%
-80
-60
-40
-20
0
20
40
60
80
100
10
11
12
13
14
15
16
17
18
19
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Ran
d B
illi
on
% o
f G
DP
Change in inventory levels
Change in inventories (RHS)
Industrial & commercialinventories as % of GDP
Source: IDC, compiled from SARB data
Employment
Formal non-agricultural sector employment
Productivity and unit labour costs
Change in employment levels
8
• Continued sluggish growth in the economy is limiting the
expansion of employment levels.
• According to the Quarterly Employment Survey (QES), non-
agricultural formal sector employment expanded by just over
39 000 in 2013. This was largely due to the expansion of
general government’s workforce by 39 041 to 1 977 712
during the year (refer to the chart overleaf).
• Employment levels in the private sector, in contrast, remained
largely unchanged. However, notable changes at sector level
included gold mining, where around 17 000 jobs were lost,
and the wholesale and retail trade sector, where overall
employment increased by 22 000.
• Total employment in the manufacturing sector, in turn,
appears to have largely stabilised around the 1.45 million
level, although the sector remains under pressure.
• Labour productivity in the non-agricultural sectors of the
economy recorded welcomed improvements in the 2nd and
3rd quarters of 2013. However, the respective index rose by
only 13% since Q1 of 2007.
• Furthermore, part of the increase was associated with
stagnant or very weak expansions in overall employment
accompanying modestly higher levels of economic activity.
• Unit labour costs increased at a fast rate over the period
2007 to 2010, averaging 9.3% per year in nominal terms or
2.5% annually in real terms. Since 2011, however, unit labour
costs increased by 0.6% per year, on average.
• Lower rates of increase in unit labour costs will assist in
limiting inflationary pressures and, if sustained, in improving
domestic competitiveness. In conjunction with a weaker
exchange rate, such a trend could support the penetration of
South African export products in global markets.
• South Africa is experiencing a high level of structural
unemployment, with the unemployment rate standing at
24.1% in Q4 of 2013, compared to 24.5% a year earlier.
Some 4.83 million people find themselves without a job,
whilst the number of discouraged work-seekers stood at 2.2
million by the end of 2013. Furthermore, according to the
expanded definition, the unemployment rate measured 34%
in Q4 of 2013, implying that 7.8 million people are
unemployed.
• At the provincial level, the Free State had the highest
unemployment rate at 33% (narrow definition), followed by
the Eastern Cape at 27.8%. Limpopo had the lowest
unemployment rate at 16.9% in Q4 of 2013.
• Subdued growth prospects are not conducive for meaningful
change in the labour absorption capacity of the economy, as
key labour-intensive sectors are likely to remain under
pressure for some time.
0
2
4
6
8
10
12
14
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3
% C
han
ge (
y-o
-y)
Labour productivity and unit labour costs
Labour productivity
Nominal unit labour costs
Source: IDC, compiled from SARB data
-200
-150
-100
-50
0
50
100
150
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Ch
an
ge i
n n
um
ber
of
job
s (
'000)
Employment in the formal non-agricultural sector
Source: IDC, compiled from Stats SA data
Additional jobs relative to preceding quarter
18
19
20
21
22
23
24
25
26
27
28
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Perc
en
tag
e
Unemployment rate
Source: IDC, compiled from Stats SA data
Employment (cont.)
9
Agriculture, forestry & fishing
7.7%Mining5.5%
Manufacturing12.4%
Electricity, gas & water
0.7%Construction
4.5%
Trade, catering & accommodation
18.8%
Transport, storage &
communication4.1%
Finance & business services
20.1%
Community, social &
personal services
4.7%
Government21.5%
Sectoral composition of employment in South Africa in 2013
Source: IDC, compiled from Stats SA data
Note: Data is for the formal sector as per data from the Quarterly Employment Statistics (QES). However, agricultural employment includes the informal sector as per data from the Quarterly Labour Force Survey.
-10 -5 0 5 10 15 20 25
Gold & uranium ore mining (1.3)Civil engineering (1.7)
Furniture (0.4)Transport & storage (3.2)
Agriculture, forestry & fishing (7.7)Motor vehicles & parts (0.9)
Community services (1.5)Plastic products (0.4)
Printing & publishing (0.5)Basic iron & steel (0.5)
Communication (0.9)Building construction (2.8)
Other services (0.3)Wearing apparel (0.5)
Wood & wood products (0.4)Other industries (0.5)
Business services (17.1)Basic chemicals (0.2)
Non-metallic minerals (0.5)Basic non-ferrous metals (0.2)
Other mining (3.1)Textiles (0.3)
Prof.& scientific equip. (0.1)Water supply (0.2)
Leather & leather products (0)Glass & glass products (0.1)
Electricity, gas & steam (0.5)Rubber products (0.1)
Electrical machinery (0.4)Other transport equipment (0.2)
Paper & paper products (0.3)TV, radio & comm. equip. (0.1)
Petroleum products (0.3)Beverages (0.4)
Coal mining (0.9)Other chemicals (0.5)
Footwear (0.1)Fabricated metal products (1.1)
Food (1.9)Machinery & equipment (1.3)
Finance & insurance (2.9)Catering & accommodation services (2.2)
Medical & other health services (2.9)Wholesale & retail trade (16.6)
Government (21.5)
Change in number ('000)
Change in employment : Q4 2013 vs Q4 2012
Source: IDC, compiled from Stats SA data
39
Note: Data is for the formal sector as per data from the Quarterly Employment Statistics (QES). However, agricultural employment includes the informal sector as per data from the Quarterly Labour Force Survey.
-17
Note: Figures in brackets in the above graph refer to the sector’s percentage share of total employment in 2013
Manufacturing sector
Manufacturing GDP and volume of production
Physical volume of production per sub-sector of manufacturing
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
• Manufacturing value added expanded marginally in 2013 (0.8%,
from 2.1% in 2012) as relatively weak demand conditions
globally and domestically, aggravated by adverse supply-side
factors, curtailed production in various sub-sectors. This was
the worst performance since the 2009 recession, when
manufacturing value added contracted by 10.1%.
• Protracted industrial action in the automotive industry during Q3
of 2013 resulted in a sharp contraction in its output. For the
year as a whole, production volumes increased marginally
(0.3%) in the case of motor vehicles, while the parts and
accessories segment reported a 5.4% contraction. The output of
the broader basic metals, fabricated metals and machinery sub-
sector expanded by 2% in 2013, and that of the chemicals,
rubber and plastics sub-sector by 1.2%.
• Despite having recovered since 2010, by January 2014
manufacturing output levels were still 21% below the pre-crisis
peak recorded in 2008.
10
Note: Figures in brackets refer to the sub-sector’s percentage share of total manufacturing production according to the 2010 large sample survey.
-25
-20
-15
-10
-5
0
5
10
15
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
Manufacturing GDP and volume of production
Volume of production (monthly)
Manufacturing GDP (quarterly)
Source: IDC, compiled from Stats SA data
-10
-8
-6
-4
-2
0
2
4
6
8
10
TotalManufac-
turing
Food &beverages
(22.1%)
Textiles &clothing(3.5%)
Wood &paper(9.3%)
Chemicals(25.1%)
Non-metallicmineral
products(4.9%)
Metals &machinery
(20.3%)
Electricalmachinery
(2.4%)
Radioand TV(1.3%)
Transportequip.(7.9%)
Furniture& other
industries(3.2%)
% C
han
ge (
y-o
-y)
Volume of production by sub-sector
2012 2013
Source: IDC, compiled from Stats SA data
Manufacturing sector (cont.)
Fixed investment and capacity utilisation
Utilisation of production capacity per sub-sector of manufacturing
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
• Fixed investment in the manufacturing sector expanded by
11.4% in 2013. This was the fastest annual rate of growth
since the 2009 recession, when a 22.1% contraction in
investment spending was recorded.
• However, considering the subdued levels of production
activity and significant spare capacity, it can be assumed that
much of this investment was of a replacement and/or
technology upgrading nature, and not necessarily for the
expansion of productive capacity.
• Manufacturing sub-sectors that reported strong increases in
fixed investment outlays included beverages, clothing, wood
products, basic metals and plastics.
• Utilisation of production capacity in manufacturing remains at
relatively low levels, therefore impacting on investment
decisions in various sub-sectors .
11
Note: Figures in brackets refer to the sub-sector’s percentage utilisation of production capacity in the fourth quarter of 2013.
70
72
74
76
78
80
82
84
86
88
90
92
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Cap
acit
y u
tili
sati
on
(%
)
% C
han
ge (
q-o
-q) *
Fixed investment and capacity utilisation
Capacity utilisation (RHS)
Fixed investment (% change)
Source: IDC, compiled from Stats SA and SARB data
-10 -8 -6 -4 -2 0 2 4 6 8 10
Glass products (86.8)
Rubber products (85.3)
Clothing (81.7)
Printing & publishing (81.5)
Fabricated metal products (78.1)
Radio, TV & communication (86.1)
Furniture (91.9)
Professional equipment (87.8)
Plastic products (86.6)
Food (83.5)
Machinery & equipment (84.5)
Footwear (88.6)
Petroleum products (84.6)
Wood products (84.6)
Other chemicals (84)
Non-ferrous metals (81.4)
Paper & paper products (88.7)
Other transport equipment (81.7)
Iron & steel (77.6)
Motor vehicles, parts & accessories (87)
Electrical machinery (82.9)
Textiles (74.3)
Other manufacturing (85.7)
Basic chemicals (88.3)
Beverages (86.3)
Non-metallic mineral products (81.2)
Leather (75.5)
Total Manufacturing (84)
Absolute change
Absolute change in sub-sectoral utilisation of production capacity (Q4 of 2013 vs Q4 of 2012)
Source: IDC, compiled from Stats SA data
Manufacturing sector (cont.)
Expectations regarding employment creation
Expectations regarding employment creation per sub-sector of manufacturing
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
• Employment losses are still being recorded in the
manufacturing sector (approximately 2 000 jobs were lost in
the sector in the year to December 2013), albeit at a more
moderate pace than during the 2008/09 economic downturn.
• The manufacturing sector has been unable to create jobs in
recent years, with the overall employment level by Q1 of 2014
still substantially below the Q4 2008 level.
• Key sectors for employment such as food, transport
equipment, as well as machinery have indicated that
continued job shedding could be expected in the short-term.
• Since business conditions will still be challenging in 2014,
employment prospects for the manufacturing sector are likely
to remain unsatisfactory, with more job losses anticipated
during Q2 of 2014.
12
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Q1 Q22014
Net
bala
nce
Employment trend - number of factory workers
Source: IDC, compiled from BER data
Expected
-100 -80 -60 -40 -20 0 20 40 60 80 100
Transport equipment
Electrical machinery
Printing & publishing
Basic metals
Plastic
Machinery
Paper
Furniture
Food
Fabricated metals
Beverages
Textiles
Non-metallic minerals
Chemicals
Clothing
Wood
Manufacturing total
Employment creation by sub-sector
Q2 2014
Q2 2013
Source: IDC, compiled from BER data Pessimistic OptimisticNeutral
Inflation and monetary aggregates
Consumer price inflation
Producer price inflation
Credit extension to the private sector
13
• Consumer price inflation resumed an upward trend in 2013,
although a somewhat surprising deceleration was recorded
towards year-end as food inflation moderated. However, food
price inflation accelerated in the first two months of 2014. A
sharply weaker currency has put upward pressure on
domestic petrol prices.
• Core inflation, which excludes food, petrol, electricity and
food, stabilised at around 5.3% during the second half of
2013, indicating that underlying inflationary pressures
remained fairly muted in the absence of demand-pull factors.
• The impact of the rand depreciation has started filtering
through to consumer prices, which rose by 5.9% y-o-y in
February 2014, from a recent low of 5.3% in November 2013.
The inflation outlook has deteriorated substantially, with the
Reserve Bank’s forecasts for headline inflation in 2014 and
2015 standing at 6.3% and 5.8%, respectively.
• Inflation at the factory gate averaged 6% in 2013, a
deceleration from the 7% recorded in 2012. However,
producer price inflation has trended upward in recent months,
measuring 7.7% in February 2014.
• Electricity and water prices increased by 17.8% in 2013,
compared to 22.5% in 2012. Some intermediate manufactured
products also experienced sharp price increases at the
producer level in 2013. For example, price increases for textile
and leather goods averaged 18.8%, rubber products 18.4%
and basic iron and steel 8.6%.
• Substantial upward pressure in the prices of final
manufactures like automotive parts and accessories, as well
as machinery and equipment emerged in the 2nd half of 2013.
• Facing rather challenging demand conditions, businesses are,
however, finding it difficult to pass higher costs on to
consumers, but pressure in this regard is building up.
• Demand for new credit by the private sector has been slowing
in recent months, a trend that could be exacerbated by the
recent hike in, and short-term prospects for interest rates.
• For households, growth in overall credit extension decelerated
from 10.4% in December 2012 to 5.5% by December 2013.
This was partly due to stricter lending practises by the banking
sector, as well as debt-ridden consumers not being willing to
take on additional debt. The downward growth trend was
particularly pronounced in the case of demand for unsecured
borrowing by households during the course of 2013.
• Demand for mortgage finance also remained subdued, as
reflected by an average growth rate of only 2.7% for 2013,
compared to 24.3% in 2008.
• The downward trend in credit extended to the corporate sector
has been reflecting the challenging economic environment
and growth outlook, which are affecting investment decisions.
0
2
4
6
8
10
12
14
16
18
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
Consumer price inflation
CPI : Targeted inflation
Goods
Services
Source: IDC, compiled from Stats SA data
Targeted inflation measure: CPIX until Dec '08, Headline inflation since Jan '09
-10
-5
0
5
10
15
20
25
30
35
40
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
Private sector credit extension
Households
Corporate sector
Source: IDC, compiled from SARB data
-10
-5
0
5
10
15
20
25
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
Producer price inflation
Source: IDC, compiled from Stats SA data
Interest rates and yields
Repo and prime overdraft rates
Inflation and interest rates
Long- and short-term yields
14
• The repo rate remained unchanged at a four-decade low of
5% through 2013, despite upside risks to the inflation outlook.
The Monetary Policy Committee (MPC) was reluctant to raise
interest rates due to the weak economic growth momentum
and the absence of demand-pull pressures on the inflation
front.
• However, the sharp depreciation of the rand from the latter
part of 2013 and a substantial deterioration in the inflation
outlook prompted the MPC decision, at its January 2014
meeting, to raise the repo rate by 50 basis points.
• This was the first rate hike since June 2008 and may have
signaled the start of the monetary policy tightening cycle.
However, barring further excessive currency depreciation over
a prolonged period, the repo rate is not expected to be raised
aggressively. It should be noted that the South African
Reserve Bank (SARB) has lowered its GDP growth forecasts
for 2014 and 2015 to 2.6% and 3.1%, respectively.
• Subdued rates of economic expansion and a fragile growth
outlook, along with MPC expectations that consumer price
inflation would remain within the target band over its forecast
period (albeit uncomfortably close to the upper level),
underpinned the monetary policy stance of keeping interest
rates at record low levels throughout 2013.
• Consequently, in real terms the real repo rate was marginally
negative throughout the year, reflecting the extent of monetary
policy accommodation.
• Despite the 50 basis points hike in January 2014 to anchor
inflation expectations, the real repo rate remains marginally in
negative territory. However, the situation may be reversed
should additional rate hikes ensue during the course of the
year, as is widely anticipated.
• A fragile domestic economic performance, subdued growth
prospects and sizeable deficits on the current account and
fiscal balance resulting in the escalation of risk, placing
upward pressure on long-term bond yields. The trend was
exacerbated by reduced appetite of non-residents for South
African bonds.
• Long-term government bond yields increased from 7% in April
2013 (the lowest rate since 1970) to 8.3% by December, with
a higher trajectory likely in 2014.
• Since government is already facing high and rising debt
levels, higher bond yields will aggravate the situation as the
cost of borrowing rises.
• Towards the latter part of 2013, the possibility of an interest
rate increase was partly being priced in. However, January’s
repo rate hike had not been expected by the market.
0
2
4
6
8
10
12
14
16
18
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Perc
en
tag
e (
mo
nth
-en
d)
Repo and Prime overdraft rates
Repo rate
Prime overdraft rate
Source: IDC, compiled from SARB data
-4
-2
0
2
4
6
8
10
12
14
16
-4
-2
0
2
4
6
8
10
12
14
16
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Rep
o r
ate
s :
Perc
en
tag
e
CP
I :
% C
han
ge (
y-o
-y)
Inflation developments and the interest rate environment
Nominal Repo rate (Rhs)
Real Repo rate (Rhs)
CPI: Targeted inflation measure
Source: IDC, compiled from Stats SA and SARB data
4
5
6
7
8
9
10
11
12
13
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Perc
en
tag
e
Long- and short-term yields
Yield on long-term government bonds
3-Month bankers' acceptance
91-Day Treasury bills
Source: IDC, compiled from SARB data
Capital markets
Johannesburg Securities Exchange (JSE) performance
Shares traded on the JSE
Net portfolio purchases/sales by non-residents
15
• The JSE All Share Index (ALSi) continued on a strong upward
trend during 2013, recording new highs on a continuous
basis. By 31 December, the ALSi had risen by 17.8% on a
year-on-year basis. Minimal gains have been posted thus far
in 2014, amounting to 2.7% over the 1st quarter.
• Resources and industrials reported solid gains over the
course of 2013, amounting to 42% and 32%, respectively,
despite ongoing production disruptions in certain segments of
the mining sector. Financials, in turn, recorded relatively
modest gains at approximately 15%.
• Equity markets around the globe, particularly in advanced
economies, posted robust performances, stimulated by
quantitative easing and other forms of monetary policy
stimulus. Investor optimism accompanying improved growth
prospects, especially for advanced economies, further
supported equity market performances.
• The robust performance of the domestic equities market was
also reflected by the 16% increase in the overall value of shares
traded on the JSE in 2013 to almost R4 trillion, from R3.4 trillion
in 2012. Nevertheless, trading volumes were relatively subdued
as the number of shares traded increased only marginally, that
is by 3.3% year-on-year to 63.9 billion.
• Although activity on the JSE remained fairly resilient, foreign
investors exhibited substantially lower appetite for South African
equities from the latter part of 2013 and at the start of 2014
(refer to the chart below).
• The build-up of unfavourable sentiment towards emerging
markets in general, largely prompted by the anticipated tapering
of quantitative easing, contributed to this trend. However,
domestic factors such as the sizeable deficits on the current
account of the balance payments and the government balance,
and very modest economic growth prospects also played a role.
• South Africa, like many other emerging markets, experienced
substantially lower appetite by non-residents for local equities
and bonds in 2013 and thus far in 2014. Global and domestic
factors, as highlighted above, underpinned this adverse trend.
• Foreigners were net buyers of local bonds and equities to the
tune of only R1.2 billion in 2013, compared to R85.2 billion in
2012. In the final quarter of 2013, non-residents were net
sellers of bonds and equities, with the total value amounting to
R16.1 billion and R27.2 billion, respectively. The opening
months of 2014 witnessed a significant sell-off of local bonds
and to a lessor degree equities.
• The gradual monetary policy normalisation in the USA, which
involves the progressive reduction of liquidity injections on a
monthly basis and eventually upward interest rate
adjustments, among other global developments, are likely to
impact on emerging markets through portfolio adjustments.
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
50 000
55 000
60 000
65 000
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Ind
ex
JSE performance
All Share Index
Industrials
Resources
Source: IDC, compiled from Bloomberg data
Monthly averages
-80
-60
-40
-20
0
20
40
60
80
100
-80
-60
-40
-20
0
20
40
60
80
100
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
R b
illi
on
R b
illi
on
Net portfolio purchases /sales by non-residents
Net purchases of Shares
Net purchases of Bonds
Source: IDC, compiled from SARB and JSE data
Cumulative totals per annum
0
10
20
30
40
50
60
0
50
100
150
200
250
300
350
400
450
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Vo
lati
lity
in
de
x
Va
lue
of
sh
are
s:
R B
illio
n
Shares traded on the JSE
Value of shares traded (Lhs)
SA volatility index (SAVI) (Rhs)
Source: IDC, compiled from SARB and JSE data
Government finance
Budget balance
Government debt
Government savings
16
• Subdued levels of economic activity and spending weighed
on revenue collections by government in fiscal year 2014.
This is reflected by estimates for VAT collections which are
approximately R10 billion lower than in the 2013 Budget.
• Nonetheless, the revised estimate for total revenue over fiscal
year 2014 exceeds slightly the original budgeted amount. At
25.2%, however, the revenue-to-GDP ratio is below the
26.6% level recorded in 2008.
• Government’s commitment to bring expenditure under control
was reflected in the 8.4% increase in total expenditure in
2013, compared to the 11.5% rise in 2012. A concerning
factor is the substantial portion (34.5%) of overall government
spending on employee remuneration.
• A small improvement in the main budget deficit to 5% of GDP
was reported for calendar year 2013, compared to the 5.3%
deficit of the previous year.
• Public finances underwent a gradual deterioration in the years
following the global financial and economic crises in 2008/09,
as a counter-cyclical fiscal policy stance took its toll and the
fiscal space became increasingly limited.
• A widening budget shortfall and, accordingly, an increased
reliance on borrowings resulted in a steep rise in government
debt.
• The gross loan debt of government has risen from R455
billion (or 34.9% of GDP) in fiscal year 2004 to an estimated
R1 586.4 billion by FY 2014, equivalent to 45.8% of GDP.
• Growth in debt servicing costs has also risen rapidly as
borrowing requirements escalated, accounting for an
estimated 9.4% of overall expenditure in FY 2014.
• An anticipated improvement in state finances should,
however, alleviate some of the pressures in coming years.
• The contribution by government to the national savings pool
continued to deteriorate in the light of increased pressures on
the fiscus.
• After having been able to make a positive contribution to
national savings during the period 2006 to 2008, the situation
was subsequently reversed and, by calendar 2013,
dissavings by government amounted to R136.6 billion,
equivalent to 4% of GDP .
• Considering South Africa’s substantial funding requirements
for investment purposes vis-à-vis a very limited domestic
savings pool, the country is increasingly relying on foreign
capital to finance the gap.
• Continued dissaving by government may also result in the
potential crowding out of much needed private sector fixed
investment.
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% o
f G
DP
Budget balance as a % of GDP
Source: IDC, compiled from SARB data
0
5
10
15
20
25
30
35
40
45
50
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% o
f G
DP
Government's gross loan debt as a % of GDP
Source: IDC, compiled from SARB data
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% o
f G
DP
Government savings as a % of GDP
Source: IDC, compiled from SARB data
Exchange rates
The rand versus the US dollar and the euro
The rand versus other foreign currencies
Effective exchange rates of the rand
17
• The rand was one of the worst performers among major
emerging market currencies in 2013, depreciating by almost
24% against the US dollar.
• Developments such as the anticipated tapering of quantitative
easing in the USA, changing perceptions of risk in emerging
markets, major portfolio adjustments globally, weakening
economic fundamentals locally (e.g. large current account and
budget deficits) and continued labour unrest, among other
factors, affected foreign investor sentiment toward domestic
assets, altered capital flows and by implication weakened the
rand during the course of 2013 and early in 2014.
• Almost immediately after the largely unexpected 50 basis points
hike in the repo rate by the MPC on 29 January, which came
soon after sizeable rate adjustments were made by Turkey’s
monetary authorities, the rand tumbled to its weakest level in
over 5 years. The currency has since recovered some ground,
but remains highly vulnerable to local and global developments.
• The following illustrate the extent of appreciation (+) or
depreciation (-) of the rand against a select number of
currencies over the period March 2013 to March 2014*:
* All of the above percentage changes are based on monthly average exchange
rates.
• The depreciation of the rand against a basket of currencies*
since early 2012 is illustrated in the adjoining graph. The
nominal effective exchange rate fell by almost 16% in 2013,
while the drop in real terms amounted to around 11%.
• Although a weaker rand may be expected to improve the
relative price competitiveness of exports in world markets and
provide some protection vis-à-vis imports in local markets,
various factors are at play. These include subdued demand in
key global markets (e.g. Eurozone) and the performance of
other currencies in competing export-oriented economies,
which may limit the export growth potential. Furthermore, the
rand depreciation exerts upward pressure on domestic prices,
gradually eroding the price competitiveness provided by
currency weakness, while adversely affecting the trade
balance by raising the rand value of essential imports.
* Euro (34.8% weight), US dollar (14.9%), Chinese renminbi (12.5%), British pound (10.7%) and Japanese yen (10.1%), among others
4
6
8
10
12
14
16
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Ran
d p
er
US
D o
r E
uro
Exchange rate movements of the rand
Rand per Euro
Rand per US dollar
Source: IDC, compiled from SARB and Bloomberg data
2
4
6
8
10
12
14
16
18
20
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Ran
d p
er
GB
P o
r Y
en
Exchange rate movements of the rand
Rand per British pound (GBP)
Rand per Japanese Yen (X 100)
Source: IDC, compiled from SARB and Bloomberg data
40
50
60
70
80
90
100
110
120
130
140
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Ind
ex:
2000 =
100
Real and nominal effective exchange rates
Nominal effective exchange rate
Real effective exchange rate
Source: IDC, compiled from SARB data
Appreciation
Depreciation
– Australian dollar : -2.9%
– Brazilian real : 0.2%
– British pound : -29.2%
– Chinese renminbi : -18.1%
– Euro : -25.0%
– Indian rupee : -4.7%
– Japanese yen : -8.4%
– US dollar : -17.3%
Balance of payments
Trade balance
Trade performance per sector
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
• South Africa experienced a substantial deterioration of its trade
balance in 2013 as relatively weak global demand and labour
related production stoppages in key segments of its mining and
manufacturing sectors took a toll on exports.
• Moreover, the US dollar earnings associated with mining
exports were negatively affected by lower commodity prices
with respect to gold, platinum, coal and, among others, copper,
although a sharply weaker rand compensated to a large extent.
Iron ore exports, mainly destined for China, increased by 20%
in nominal terms in 2013 to R74 billion, compared to R61.5
billion in 2012. Manufactured exports were adversely impacted
by prolonged strike action in the automotive and components
sub-sector, resulting in a substantial widening of the trade
deficit for manufactured goods.
• The trade deficit for 2013 as a whole stood at R73.6 billion or
2.2% of GDP - the worst ratio since the 2.9% recorded in 1970.
18
-150
-100
-50
0
50
100
150
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
R b
illi
on
Movements in the trade balance
Source: IDC, compiled from SARB data
Seasonally adjusted and annualised data
-4 000 0 4 000 8 000 12 000 16 000 20 000
Other manufacturing
Furniture
Other transport equipment
Motor vehicles & parts
Professional equipment
Radio & TV
Electrical machinery
Machinery & equipment
Fabricated metals
Non-ferrous metals
Iron and steel
Non-metallic minerals
Glass
Plastic products
Rubber products
Other chemicals
Industrial chemicals
Petroleum
Printing and publishing
Paper products
Wood products
Footwear
Leather
Clothing
Textiles
Beverages
Processed food
Mining
Agriculture
R Million
Change in export and import values : 2013 vs 2012
Imports
Exports
Source: IDC, compiled from SARS data
R28.2 bn
Balance of payments (cont.)
Current account of the balance of payments
Current account balance and financial flows
Total reserves and import cover
19
• The large trade imbalance was the key contributor to the
deteriorating deficit on the current account of the balance of
payments in 2013, which widened to 5.8% of GDP, from 5.2%
in 2012.
• In turn, the net services, income and transfer payments
components of the balance of payments jointly recorded a
very modest improvement of about R1.4 billion compared to
2012, as their combined deficit declined to R123.6 billion.
Although income payments (dividends and interest) increased
strongly, the net income position improved as dividend
receipts rose by 51% to R39 billion in 2013. Moreover, income
receipts doubled over the past two years, reflecting an
improved global economic performance that benefitted South
African companies and/or shareholding abroad.
• Current transfers by central government (mainly SACU
payments) increased to R41.5 billion in 2013 (R35.7 billion in
2012), which was more than double the 2011 figure.
• Foreign portfolio capital movements fell sharply from an inflow
of R48.8 billion recorded in the 3rd quarter of 2013 to an
outflow of R30.8 billion in the final quarter of the year, largely
in reaction to the US Federal Reserve’s announcement of its
tapering plans for the quantitative easing stimulus.
• Portfolio inflows totaled a mere R14.3 billion for 2013 as a
whole, dramatically lower than the R95 billion recorded in
2012.
• In contrast, foreign direct investment (FDI) flows into South
Africa more than doubled in 2013 to R79.1 billion (R37.4
billion in 2012), with the largest FDI inflows (R47.4 billion)
witnessed during the 3rd quarter of the year.
• Overall, foreign capital inflows (i.e. portfolio investment, direct
investment and other investment) still exceeded the current
account deficit, but the margin was significantly reduced to
R4.7 billion in 2013, compared to R32.7 billion in 2011.
• South Africa’s gross gold and international reserves increased
by R89.2 billion to R520.2 billion in 2013. In dollar terms,
however, their overall value fell modestly from USD50.7 billion
in 2012 to USD49.6 billion last year, mostly due to significant
rand weakness.
• Whereas gold reserves dropped by about 11% to R50.6
billion, mainly due to the sharp fall in the gold price during
2013, foreign exchange reserves rose by close to 26% to
R469.6 billion by the end of 2013.
• Despite relatively strong growth in import demand, the import
cover (i.e. the ratio of international reserves to overall imports
of goods and services) improved marginally to an average of
19.4 weeks in 2013, compared to 19.1 weeks in 2012 and a
mere 14.6 weeks back in 2008.
Note: Seasonally adjusted and annualised data
-250
-200
-150
-100
-50
0
50
100
150
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
R B
illi
on
Current account of the balance of payments
and its respective components
Transfers Income
Services Trade
Overall current account
Source: IDC, compiled from SARB data
-80
-60
-40
-20
0
20
40
60
80
100
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
R B
illi
on
Current account balance and financial flows
Foreign capital flows
Current account balance
Source: IDC, compiled from SARB data
0
3
6
9
12
15
18
21
24
27
0
100
200
300
400
500
600
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Nu
mb
er
of
weeks
Reserv
es:
R B
illi
on
Total reserves and the import cover
Total reserves (gold & foreign exchange): (LHS)
Import cover (weeks)
Source: IDC, compiled from SARB data
Balance of payments (cont.)
Composition of the export basket
Imports according to broad category
Key export destinations
20
• Manufactured goods saw their share of the overall
merchandise export basket increase slightly in 2013 as
external demand improved in line with the global economic
recovery. Exports of manufactured goods increased by
13.4% in nominal terms in 2013. However, these remain
highly concentrated, as a few sectors such as motor vehicles,
parts and accessories, basic iron and steel, basic chemicals,
and non-electrical machinery and equipment accounted for
just over 50% of all manufactured exports in 2013.
• Mining exports rose by 9.1% in 2013, with the rebound in
platinum exports amounting to 25% for a total of R81.3 billion
(-18.5% in 2012). Iron ore exports expanded by 20% on the
back of continued strong demand from China.
• In turn, gold exports tumbled by 10.5% to R63.6 billion as the
gold price and export volumes dropped sharply during the
course of the year.
• Demand for imported goods remained fairly robust in 2013
despite a moderation in overall GDP growth.
• The public sector’s infrastructure build programme largely
underpinned the strong demand for imported capital goods,
considering the high import intensity of South African
investment activity. Imports of electrical machinery and
equipment, for instance, increased by a massive 46% in
nominal terms in 2013, strongly linked to Eskom’s
investments in its new power stations, Medupi and Kusile.
• The domestic economy’s energy intensity is illustrated by
substantial imports of both crude oil and refined petroleum
products, which totaled R144.5 billion and R65.3 billion,
respectively, in 2013. Together, these products accounted for
a 21.6% share of the overall merchandise import basket.
Interestingly, the value of South Africa’s oil imports was
equivalent to 43% of its mining exports in 2013, with the
figure rising to over 62% if petroleum imports are included.
• China retained its position as South Africa’s leading export
destination in 2013, being the recipient of 13.5% of non-gold
merchandise exports. Exports to China totaled R116 billion,
with iron ore alone claiming R51 billion or 47% of the export
basket destined for the Asian giant. Non-ferrous metal ores
(e.g. manganese, chrome) followed with an 18.3% share.
• Exports to traditional trading partners improved in 2013,
particularly in the case of the EU (18.1% increase in exports)
and Japan (+15.1%). Exports to the USA rose by a modest
4.3%, well below the 13.2% rise in total merchandise exports.
• The African continent has become an increasingly important
trading partner in recent years, accounting for 28.7% of South
Africa’s export basket in 2013 (25.7% in 2010. Botswana and
Namibia were the leading African markets and the export
basket destined for the rest of the continent is dominated by
manufactured goods, with machinery and equipment for
mining and agricultural activities being key export products.
Note: A new method, in line with United Nations guidelines, was used in classifying imported goods by type of category
0
10
20
30
40
50
60
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% S
hare
Composition of the merchandise import basket
Source: IDC, compiled from SARS data
Raw materials (incl. Crude oil)
Intermediate goods
Consumption goodsCapital goods
0
20
40
60
80
100
120
140
R B
illi
on
Export performance by key destination
2012 2013
Source: IDC, compiled from SARS data Note: Data including BLNS
0
10
20
30
40
50
60
70
80
90
100
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
% o
f E
xp
ort
s
Composition of the export basket
Manufactured products
Agriculture, forestry & fishing
Gold
Other mining products
Source: IDC, compiled from SARS data
Commodities
Commodity prices
Gold and platinum
Brent crude oil
21
• Prices of non-fuel commodities in general have tended to
move sideways over the past two years, particularly where
agricultural raw materials and food commodities are
concerned.
• Metal prices, in turn, have not only exhibited a somewhat
pronounced downward trend but have also been more
volatile.
• The profile of global demand for commodities is also
gradually changing as growth in emerging markets
decelerates and the economic recovery in advanced
economies gathers momentum.
• Recent trends in commodity prices have been supportive of a
low inflation environment globally, although the sharp
depreciation of several emerging market currencies may be
countering the benefits in the respective economies through
imported inflation.
• Improving perceptions of risk at the global level, a relatively
low inflation environment internationally, expectations of
modest upward adjustments in interest rates going forward,
clear signs of recovery in major advanced economies and the
relatively good performance of equity markets and other asset
classes have continuously eroded the allure of gold as an
investment option or as a safe haven. This has been reflected
in the steep decline of the gold price over the course of 2013.
• Platinum prices remain depressed by subdued industrial
demand globally, particularly the automotive industry, by
recycling activity, and by lower physical investment demand
more recently. This is in spite of industrial action related
production losses in SA’s platinum industry, the world’s
largest supplier, with inventories playing a role in this regard.
• Substantial currency weakness has elevated gold and
platinum prices in rand terms, benefitting beleaguered local
producers to a considerable extent.
• Oil prices have trended slightly downward over the past two
years, as slowing growth in emerging markets combined with
increasing US energy independence eased demand
pressures. Supply side concerns surrounding political turmoil
in North Africa and the Middle East have moderated.
• However, upside risks are re-emerging due to Russia’s
involvement in the Ukraine, particularly concerns over a
potential escalation of geo-political conflict over the Crimean
issue.
• Relative stability in international oil prices, in conjunction with
favourable trends in other commodity prices, have supported
a largely benign inflation environment globally, especially in
advanced economies. In rand terms, however, progressively
higher oil prices have been impacting negatively on South
African inflation, with higher fuel prices gradually leading to
second round inflationary pressures.
0
200
400
600
800
1 000
1 200
1 400
20
40
60
80
100
120
140
160
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Ran
d /
barr
el
US
D /
barr
el
Brent crude oil price
Oil: USD / barrel
Oil: Rand / barrel
Source: IDC, compiled from IFS and Bloomberg data
0
50
100
150
200
250
300
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Ind
ex:
2005 =
100
Commodity price movements
Agricultural raw materials
Food
Metals
All non-fuel commodities
Source: IDC, compiled from IFS data
0
3 000
6 000
9 000
12 000
15 000
18 000
0
400
800
1 200
1 600
2 000
2 400
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Ran
d /
oz
US
D /
oz
Gold and platinum prices
Platinum : US$/oz Gold : US$/oz
Platinum : Rand/oz Gold : Rand/oz
Source: IDC, compiled from SARB and Bloomberg data
Business cycle indicators
SARB business cycle indicators
BER business confidence indicators
BER/FNB confidence indicators
22
• The leading indicator has been moving sideways since 2010,
reflecting prospects of a very modest recovery of the South
African economy over time.
• The leading indicator edged marginally upward to 100.2 in
January 2014, from a revised 99.9 in December 2013, with
the positive contributions of five of its components
outweighing the negative influence of six other components to
a small extent. Negative contributions in January 2014
emanated from moderations in the leading business cycle
indicators of major trading partners, as well as softening
commodity prices. Domestic factors included a slowdown in
real M1 money supply, a declining number of new passenger
vehicles sold and slightly lower business confidence. Factors
that supported the leading indicator in January 2014 included
an increase in building plans passed, rising share prices on
the JSE, a higher number of job advertisements and the
differential between long- and short-term interest rates.
• Business confidence fell marginally to 41 points in Q1 of
2014, from 43 points in the preceding quarter. Confidence
levels have not only remained low but have been on a
declining trend since Q1 of 2013. Contributing factors have
included weak domestic growth and poor prospects, the
extent and protracted nature of industrial action, operational
challenges associated with issues such as energy supply and
other infrastructural bottlenecks, concerns over the
sustainability of the recovery in advanced economies and the
decelerating growth momentum in key emerging markets.
• Confidence among manufacturers has been generally weaker
than for the broader sample of respondents in the economy
for several years, but an improvement was recorded in Q1 of
2014 largely on the back of an improved export performance
and outlook. In contrast, confidence fell in all trade-related
sectors covered by the survey, with new vehicle dealers
voicing the steepest drop (by 14 points to 27) in Q1 of 2014.
• Confidence in the construction sector has improved since the
lows reached in 2011, with the civil engineering component
recording 66 points in Q4 2013, its highest level since Q3
2008. However, confidence levels fell to 55 in Q1 2014,
highlighting the sector’s continued challenges. The continued
roll-out of government’s infrastructure programme, albeit at a
slow pace, remains key for civil engineering services demand.
• The building industry has been affected by very subdued
household demand for new housing. Confidence levels in the
industry nevertheless improved to 52 points in Q1 of 2014,
the highest reading in more than five years.
• The interest rate hike in January 2014 and expectations of
further increases, coupled with rising inflationary pressures
and a yet fragile job market are likely to put a damper on
consumer spending, at least in the short-term, with potentially
negative implications for the building industry.
70
80
90
100
110
120
130
140
70
80
90
100
110
120
130
140
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Ind
ex:
2010 =
100
Ind
ex:
2010 =
100
Business cycle indicators
Coincident indicator (Lhs)
Lagging indicator (Lhs)
Leading indicator (RHS)
Source: IDC, compiled from SARB data
0
10
20
30
40
50
60
70
80
90
Q1 Q32007
Q1 Q32008
Q1 Q32009
Q1 Q32010
Q1 Q32011
Q1 Q32012
Q1 Q32013
Q1
Net
bala
nce
SA economy
Manufacturing
Source: IDC, compiled from BER data
Neutral
Extreme confidence
Extreme lack of confidence
Business confidence in the SA economy
and in the Manufacturing sector
0
10
20
30
40
50
60
70
80
90
100
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
Q1
Ind
ex
Confidence in the construction industry
Civil engineering
Building industry
Source: IDC, compiled from BER data
Miscellaneous indicators
Retail trade sales
New vehicles sales and exports
Building plans passed and buildings completed
23
• The pace of increase in retail sales moderated substantially
during 2013 as a worsening consumer environment took its
toll on household expenditure. Retail sales growth averaged
2.8% in real terms, down from 4.6% in 2012.
• Furniture retailers recorded a 5.4% contraction in sales
volumes during 2013, as consumers reduced their spending
on durable goods, whose replacement can be postponed.
• Retailers that experienced relatively stronger sales were
clothing retailers (7.5% average growth) and hardware, paint
and glass retailers (5.9% average). The increase in the
hardware segment could point to an increase in DIY home
renovations, to the detriment of the formal building sector.
• Despite a strong and somewhat unexpected rebound in retail
sales in January 2014, limited financial space for consumers
with continued price increases in essential goods is expected
to keep retail sales under pressure over the short-term.
• Domestic vehicles sales in South Africa totaled 625 000 in
2013, a 3.2% increase or 19 000 additional units sold
compared to 2012.
• Nevertheless, the second half of 2013 saw a decline in
monthly car sales compared to the corresponding period in
2012. This trend continued in 2014, with the sales volume in
January being 8.3% lower year-on-year.
• The adverse impact of the protracted industrial action in the
automotive industry during the latter part of 2013 is reflected
in the total number of vehicles exported during the year,
which declined by 0.6% or 1 600 units.
• The industry is still struggling to recover, as illustrated by the
fact that in the first two months of 2014, 8 800 fewer vehicles
were exported relative to the same period a year earlier,
mainly passenger vehicles (-11 000), with light commercial
vehicles recording an increase of 2 400 over this period.
• The value of building plans passed has increased slightly in
real terms since 2011. The average increase in 2013
amounted to 11.9% y-o-y, significantly higher than the 4.3%
recorded in 2012.
• This favourable trend has translated into a higher value of
buildings completed, which increased by 10.4% in 2013.
• However, the residential building sector underperformed in
2013 both in terms of building plans passed and buildings
completed, reflecting the constrained financial position of
households. The non-residential buildings segment, in turn,
recorded increases in real terms of 34.8% in building plans
passed and 24.7% in buildings completed.
• Activity in the building sector appeared to have gained
momentum at the start of 2014, but the interest rate outlook
may stifle the trend.
-10
-5
0
5
10
15
20
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
Retail trade sales in real terms
Source: IDC, compiled from Stats SA data
100
150
200
250
300
350
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Ind
ex:
2000 =
100
Building plans passed and buildings completed
Building plans passed
Buildings completed
Source: IDC, compiled from Stats SA data
-250
-200
-150
-100
-50
0
50
100
150
200
250
-50
-40
-30
-20
-10
0
10
20
30
40
50
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
% C
han
ge (
y-o
-y)
Domestic vehicles sales and exports
Domestic sales (Lhs)
Exports (Rhs)
Source: IDC, compiled from NAAMSA data
Miscellaneous indicators (cont.)
Foreign direct investment
Liquidations of companies
Petrol price and crude oil prices
24
• Foreign direct investment (FDI) inflows worldwide increased
by 11% in 2013 to USD 1.46 trillion, according to UNCTAD
estimates.
• Flows into developing economies reached an historical high,
with the grouping claiming 52% of global FDI inflows last year
Although slightly lower than the 54% share recorded in 2012,
it is a substantial gain relative to the 43% in 2011.
• The 6.8% increase in FDI flows into Africa towards a total of
USD56.3 billion was largely underpinned by the record
inflows experienced by South Africa (R79.1 billion in 2013,
compared to R37.4 billion in 2012) and Mozambique. In
comparison with other BRICS countries, South Africa posted
the best FDI growth performance in 2013.
• FDI inflows amounting to R20 billion were recorded by the
banking sector, whilst R58.9 billion were directed to the local
private non-banking sector.
• A declining trend in company liquidations was evident
throughout 2013, with a total of 2 374 companies having been
liquidated during the year compared to 2 716 in 2012. This
may be indicative of a degree of stabilisation in the business
environment.
• The majority of liquidations in 2013, whether in the case of
companies or close corporations, was of a voluntary nature.
• The highest concentration of liquidations was reported in the
business services and real estate sector, as well as in the
wholesale and retail trade sector. Theses two sectors are
characterised by low barriers to entry and are also amongst
the most vulnerable to changes in household spending
propensity, which has been weakening.
• Despite a greater degree of stability in international crude oil
prices, which have remained within a relatively narrow range
of USD119 to USD98 per barrel (Brent) since the start of
2013, petrol prices in South Africa have been escalating.
• The sharp weakening of the rand in the closing months of
2013 and early in 2014 underpinned the R1.14/l increase in
the petrol price (93 octane ULP, Gauteng) in the 1st quarter of
the current year to R14.11/l.
• The sharp increase in petrol prices thus far in 2014 is
expected to fuel inflation in South Africa, with the South
African Reserve Bank expected to remain vigilant so as to
contain second round pressures.
0
20
40
60
80
100
120
140
160
180
200
220
240
3
4
5
6
7
8
9
10
11
12
13
14
15
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Cru
de o
il in
US
D /
barr
el
Ran
d p
er
Lit
re
Petrol and crude oil price trends
Crude oil price (USD / barrel) - (RHS)
Petrol price: 93 ULP (Gauteng) - (R / litre)
Source: IDC, compiled from SAPIA and Bloomberg data
0
100
200
300
400
500
600
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
Nu
mb
er
Number of liquidations
Total
Companies
Close Corporations
Source: IDC, compiled from Stats SA data
-10
0
10
20
30
40
50
60
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
R b
illi
on
Foreign direct investment into South Africa
Source: IDC, compiled from SARB data
International indicators
World economic climate index
GDP growth in advanced economies
GDP growth in emerging economies
25
• Quarterly Ifo surveys revealed rather unfavourable views of
economic conditions globally for most of 2013.
• An improvement was, however, observed towards year-end
due to a generally improved economic performance in
advanced economies, with the Eurozone having emerged
from its longest recession. On the other hand, GDP growth
moderated in emerging economies, with China reporting a
somewhat disappointing economic performance, relative to
historical growth rates, in 2013.
• The Ifo’s assessment in Q1 of 2014 provided a more
optimistic view of the state of the global economy, as its world
economic climate indicator rose to almost a three-year high.
This was underpinned by improving prospects for North
America (especially the USA) and Europe (e.g. Germany, UK,
Italy, Spain, Portugal). In contrast, the outlook for Asia
deteriorated to some extent.
• Global growth dynamics have changed, with advanced
economies having switched to a relatively higher gear and
thus making greater contributions to world growth.
• The growth momentum in the USA accelerated from the start
of 2013 and peaked at 4.1% (q-o-q annualised rate) in the 3rd
quarter of the year. The government shutdown and
extraordinarily cold weather resulted in a more moderate
performance of 2.4% in the final quarter of 2013.
• Although the Eurozone emerged from recession in Q2 of
2013, largely due a stronger performance from Germany,
overall growth remains very modest, particularly in peripheral
countries. Signs of improvement are, however, becoming
clearer, with manufacturing production picking up.
• Japan, the world’s third largest economy, reported a softening
of its economic growth momentum in the 2nd half of 2013, due
to a moderation in consumer spending and exports.
30
40
50
60
70
80
90
100
110
120
130
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Ind
ex:
1995=
100
World Economic Climate
Source: IDC, compiled from Ifo data
Long-term average
Q1 2014
-20
-15
-10
-5
0
5
10
15
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
han
ge (
q-o
-q) *
GDP growth in advanced economies
USA
Japan
Euro area
Source: IDC, compiled from OECD data
-15
-10
-5
0
5
10
15
Q1 Q22007
Q3 Q4|
Q1 Q22008
Q3 Q4|
Q1 Q22009
Q3 Q4|
Q1 Q22010
Q3 Q4|
Q1 Q22011
Q3 Q4|
Q1 Q22012
Q3 Q4|
Q1 Q22013
Q3 Q4|
% C
ha
ng
e (y-o
-y)
GDP growth in the BRIC countries
Brazil Russia India China
Source: IDC, compiled from OECD, China (NBS) data
• Growth in emerging markets moderated to an estimated 4.7%
in 2013, from 4.9% in 2012.
• China is grappling with rebalancing its economy to reduce the
dependency on fixed investment activity and exports. GDP
growth came in at 7.7% for 2013 and is forecast to decelerate
to an average of 7.1% per annum over the next five years.
• India’s economic performance in 2013 benefitted from
favourable weather conditions, which supported higher
agricultural output, as well as stronger exports earnings.
Nevertheless, like China, its current and projected growth
rates are a fraction of the historical tempo.
• Brazil reported sluggish growth in 2013 mostly due to
lacklustre performances by mining and manufacturing.
• Growth in the Russian economy decelerated sharply to an
estimated 1.5% in 2013, from 3.4% in 2012. Note: Russia’s GDP growth for Q4 2013 not yet available
International indicators (cont.)
Equity market performance
Consumer price inflation
Interest rates
26
• Several major stock markets around the globe, particularly
those of advanced economies, recorded solid performances
in 2013 due to renewed confidence over the pace and
sustainability of their economic recovery.
• In the USA, the S&P 500 ended 2013 about 30% higher on a
yearly basis and the Dow Jones gained 27%.
• In Europe, Germany’s DAX posted gains of almost 26% over
the course of 2013, France’s CAC recorded an 18% rise and
the UK’s FTSE 100 increased by just over 14%.
• Boosted by the “Abenomics” government policy, which entails
the "three arrows" of fiscal stimulus, monetary easing and
structural reforms, Japan’s Nikkei had a sterling performance
in 2013, rising by an extraordinary 57%.
• Brazili’s Bovespa had a dismal performance in 2013, ending
the year 15.5% lower, and China’s stock-market fell by 6.8%.
0
50
100
150
200
250
300
350
40
60
80
100
120
140
160
180
1
|
3 5 7
2005
9111
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Ind
ex:
Jan
uary
2005 =
100
Ind
ex:
Jan
uary
2005 =
100
Global equity markets
Dow Jones (Lhs) FTSE 100 (Lhs)
Nikkei (Lhs) Bovespa (Rhs)
Source: IDC, compiled from Bloomberg data
-3
-2
-1
0
1
2
3
4
5
6
7
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
% C
han
ge (
y-o
-y)
Consumer price inflation
USA Euro area
Japan UK
Source: IDC, compiled from IFS and The Economist data
0
1
2
3
4
5
6
1
|
3 5 7
2006
9111
|
3 5 7
2007
9111
|
3 5 7
2008
9111
|
3 5 7
2009
9111
|
3 5 7
2010
9111
|
3 5 7
2011
9111
|
3 5 7
2012
9111
|
3 5 7
2013
9111
|
3
Perc
en
tag
e
International interest rates
USA (Federal funds rate)
Euro area (main refinancing operations)
Japan: Overnight call rate
Source: IDC, compiled from OECD, Federal Reserve, ECB and BoJ data
• Inflationary forces in advanced economies have remained
subdued in the light of weak demand conditions and lower
commodity prices.
• In the USA and Eurozone, the rate of increase in consumer
prices stayed below the 2% inflation target throughout 2013.
Although at relatively higher levels, consumer price inflation in
the United Kingdom embarked on a downtrend trend. The
European Central Bank has expressed concerns over
deflationary tendencies in the Eurozone, indicating its
readiness to act should the trend justify it.
• Plagued by deflation for a number of years, the rate of
increase in consumer prices in Japan accelerated to 1.6% by
December 2013 and measured 1.5% in February 2014.
• Considering a rather benign inflation outlook for the advanced
economies, the respective central banks are likely to keep
interest rates at historical lows for some time.
• In the absence of inflationary pressures, the monetary
authorities in the USA, Eurozone and Japan have been able
to hold interest rates at extremely low or even at historical low
levels throughout 2013.
• In the Eurozone, the European Central Bank reduced interest
rates by 25 basis points on two separate occasions during the
course of last year. This accommodative monetary policy
stance was taken to assist the gradual economic recovery,
whilst inflation prospects remain benign.
• In the USA, the Federal Reserve indicated that it will keep
interest rates at low levels for an extended period. This will be
the case as long as the unemployment rate is above 6.5%
and expected consumer price inflation does not exceed the
2% target range by more than 0.5 of a percentage point.
• In Japan, businesses can now borrow funds at a marginal
interest rate of 0.1% p.a. for a period of up to four years.
Gross Domestic Product
• Conditions in the South African economy remain
unsatisfactory.
• The rate of decline in consumer spending deteriorated to
5.8% in Q2 of 2009, its worst performance in almost 25
years.
• Factors contributing to poor consumer spending include
:
– Increased job losses
– Falling real disposable incomes
27
Balance of payments: Consists of three main accounts : (1) the current account, which is made up of visible trade (i.e. merchandise exports and imports) and invisible trade (i.e. payments and receipts for services such as transportation, travel, etc; income, including compensation of employees, investment income and current transfers); (2) the capital transfer account, which reflects net capital transfer receipts; and (3) the financial account, which consists of direct investment, portfolio investment (i.e. the selling and purchasing of assets such as shares and stocks) and other investment flows. Bond: A fixed interest-bearing security issued by the central government. Its yield to redemption is an arbitrary rate which reflects market conditions, including participants’ expectations. BER: Bureau for Economic Research at the University of Stellenbosch Effective exchange rate: Obtained by weighting the exchange rate between the rand and the currencies of major trading partners. The weights of the five major currencies are the following: Euro (34.8%), US dollar (14.9%), Chinese renminbi (12.5%), British pound (10.7%) and the Japanese yen (10.1%). FCEG: Final consumption expenditure by general government includes spending on individual goods and services (e.g. education, health and social services), as well as expenditure on collective goods and services to the benefit of the community as a whole (e.g. maintenance of law and order, public administration and defence). FCEH: Final consumption expenditure by households measures the sum of outlays on new goods and services by resident households, including private non-profit organisation. FDI: Foreign direct investment. GDE: Gross domestic expenditure is the total value of the expenditure by households, the corporate sector and general government on final goods and services. It differs from expenditure on GDP in that it includes imports but excludes exports. GDP: Gross domestic product is the total value of all final goods and services produced within the economy. GFCF: Gross fixed capital formation represents total spending by both the private and public sectors on tangible and intangible assets which have been produced and are themselves used continuously in product processes for more than a year (i.e. investment goods or articles which yield future benefits). General government: Central, regional and local authorities and extra-budgetary funds. Growth rates: Unless otherwise specified, these are obtained by calculating the percentage change between the figure for the current period and that of the corresponding period in the previous year. IFS: International Financial Statistics IMF: International Monetary Fund
Import cover: Refers to the number of days’ worth of imports which current reserves can cover. Interest rates: The prime rate is the lowest rate at which a clearing bank will lend money on an overdraft facility; the repo rate replaced the Bank rate as the benchmark interest rate in the economy on 9 March 1998 – this is the rate at which the central bank makes cash available to banks on a tender basis through repurchase agreements; banks that experience difficulties in obtaining cash can borrow from the central bank at the penalty rate, which is known as the marginal lending facility rate; and the BA rate is an abbreviation for “bankers’ acceptance rate”, which refers to the rate at which banks are willing to discount three-month bankers’ acceptance. JSE: Johannesburg Securities Exchange LHS: Left hand scale Money supply: M1 = the sum of coins and banknotes in circulation, cheque and transmission deposits plus other demand deposits; M2 = M1 plus other short-term deposits and medium-term deposits held by the domestic private sector; and M3 = M2 plus long-term deposits held by the domestic private sector. Price indices: The consumer price index (CPI) represents the prices of a basket of consumer goods and services, whereas the production price index (PPI) represents the prices of a basket of producer goods, including capital and intermediate goods. Public corporations: Government-owned businesses which are formally established and regulated by an enabling Act of Parliament, or companies wholly or mainly owned by public authorities. Real terms: A variable is “in real terms” when its value has been adjusted for changes in the purchasing power of money. This is carried out by deflating by an appropriate price index, with the resulting value being in “constant prices”. RHS: Right hand scale SARB: South African Reserve Bank Seasonal adjustment: Refers to the elimination of the seasonal variation in a time series. Stats SA: Statistics South Africa Trade balance: The difference between the exports and the imports of goods (excluding services). ULP: Unleaded petrol UNCTAD: United Nations Conference on Trade and Development.
27
Glossary of terms
Note: An in a specific graph indicates % change at constant prices, at a seasonally adjusted and annualised rate. *
Compiled by:
The Department of Research and Information
Industrial Development Corporation of South Africa Limited
PO Box 784055, Sandton, 2146, Gauteng, South Africa
For further assistance or information contact:
The Department of Research and Information
Tel: +27 11 269 3454 (Dianne Rymer)
Email: dianner@idc.co.za
IDC Head Office:
19 Fredman Drive, Sandown, 2196
PO Box 784055, Sandton, 2146, South Africa
Tel: +27 11 269 3000
Fax: +27 11 269 3456
Call Centre: 0860 693 888
Email: callcentre@idc.co.za
Website: www.idc.co.za
Although every care is taken to ensure the accuracy of this publication, supplements, updates and replacement material; the
authors, editors, publishers and printers do not accept responsibility for any act, omission, loss or damage or the
consequences thereof, occasioned by a reliance by any person upon the contents hereof.
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