South Africa: Month of mixed messages

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As has been the case for much of the past year, South Africa’s economic performance is a mixed bag, depending on what sectors and what indicators are under scrutiny. The country, which accounts for roughly a quarter of Africa’s total GDP, has seen a rise in select industries, a drop in inflation, increased government spending and modest improvements in consumer sentiment, but is still grappling with labour unrest and underwhelming export demand.

On September 11, the South African Reserve Bank (SARB) issued its latest quarterly bulletin, covering the three months to the end of June, with much of the good news offset by pointers suggesting weaker results to come in the future.

One of the positives was a 5.8% year-on–year (y-o-y) rise in manufacturing output, with petroleum‚ chemical products‚ rubber and plastics leading the way. However, seasonally adjusted figures for manufacturing for the three months ending July showed that the sector was experiencing a slowdown, with production increasing by just 0.1% over the preceding three months.

Importantly, these figures do not take into account the dip in mining output due to long-running labour disputes. Even with the September 18 decision by unions representing employees at Lonmin’s Marikana platinum mine – the frontline in the confrontation over demands for higher wages and better conditions – to return to work after winning a 22% salary increase, many mines will still post lower production levels this year, and with strike action continuing elsewhere, the sector could see further disruptions.

The term also saw South Africa’s current account deficit widen to 6.4% of GDP, up from the 4.9% recorded in the previous quarter, a result the bank said was due to a weakening of export demand. “Despite a depreciation in the exchange value of the rand, export volumes declined notably, influenced by the general moderation in global demand,” the SARB said in its statement.

Government spending was also up in the second quarter of the year, rising 15% quarter-on-quarter, as numerous stalled infrastructure developments have begun taking shape, which in turn have driven growth in the construction sector. Another positive for the economy was a decline in headline consumer price inflation, shrinking from 6.3% to 4.9% in July, mainly due to lower food and transport costs. With South Africa heading into the warmer summer months, fuel costs and food prices could ease further, in line with seasonal trends.

The SARB report put GDP expansion at 3.2% for the first half of 2012, up from 2.7% for the preceding six months. However, many analysts believe this will slip somewhat, with a year-end figure of around 2.5% more likely.

Data issued by Statistics South Africa on September 18 showed that employment in the formal non-agricultural sector had increased by 0.5% in the second quarter of 2012. The increase, representing 42,000 new positions, lifted employment levels to 8.43m. However, the manufacturing sector, the second-largest contributor to GDP and considered a bellwether for the overall economy, shed 9000 jobs in the three months ending June 30. While the SARB report highlighted rising manufacturing output, its weaker job showing in the second quarter has further fuelled concerns that South Africa could see a slowdown due to falling demand for exports as international markets cool.

Some of the concerns over the direction of the economy may have been eased by a report pointing to a slight improvement in consumer sentiment in the third quarter. Though still short of optimism, consumers are moving away from the pessimistic outlook of the past 18 months, according to a study conducted by the Bureau of Economic Research and the First National Bank.

The overall consumer confidence index moved closer to positive territory in the second quarter of 2012, lifting from -3 to -1, the survey showed. While well off the first-quarter result of +5, the latest index does indicate that hopes for an improvement are on the rise heading into autumn.

The SARB’s third-quarter bulletin, due out in December, will be eagerly awaited by analysts as it will give a clearer indication of which way the economy is tipping, while eyes will also be fixed on South Africa’s overseas markets, crucial to supporting both mining and manufacturing.

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