Are nascent signs of an economic recovery for real?
Is it a bird? Is it a plane? No, it is the economic growth. But it’s still so remote it’s hard to see exactly. Just a week before government’s mini-budget, which may be the equivalent of a cold bath, there may just be a little bit of good news on the horizon.
Even though the consensus estimate for third quarter GDP growth is currently zero, Johann Els, senior economist at Old Mutual Investment Group SA, has gone out on a limb and said SA has now exited the recession and will grow 2% in Q3.
Els’ argument is that consumer demand remains weak, but strong government demand, improved exports and the inventory cycle are all now supporting growth.
This prediction will come as a huge relief for new finance minister Pravin Gordhan who will be the messenger of the bad news next week, his first real financial presentation since being appointed. The SA economy has shrunk for the first two quarters of this year by - 6,4% and by -3% making it the first recession in 15 years and the first experienced since democracy.
The key problem for SA has been a manufacturing sector buffeted from a number of different directions: a strengthening rand; frightening declines in manufacturing , the economies of key trading partners, notably the UK and Germany, and a moribund local market.
“Key indicators such as manufacturing output and new orders are rising, while electricity production and cement sales are higher, as are commercial vehicle sales. Even corporate credit extension has seen some small growth after two quarters of decline,” Els said.
The upturn follows a sharp turnaround in the global economy which is dragging manufacturing upwards at a furious rate. The global purchasing managers index is now positive for the first time since early 2008.
But the paradox of the recovery is that ordinary people in the street are yet to feel it. At a consumer level, retail sales continue to fall. Nel says evidence of this case be seen in the -7.0% year-on-year fall in retail sales in August, the -8.8% drop in car sales in September and the contraction of 0.9% in consumer credit over the third quarter of the year.
Consumer activity constitutes the key downside risk apart from the possibility of a rand which remains too strong. “Watch out for indicators such as capital spending, employment, household incomes and spending, as well as the SA Reserve Bank’s outlook assessments,” he noted.
By Tim Cohen