creamer media

Low-growth predicament

 

There have been some improvements in global economic conditions over the past few months, with the US set to grow at a better pace in 2014 than has been the case in the years following the global economic crisis. Few economic commentators are anticipating a hard landing for the Chinese economy, although it remains an outside risk, while Europe appears set to continue its slow recovery.

 

The outlook for much of the rest of Africa, meanwhile, is for continued strength and resilience, although this growth is off a low base and is being achieved amid concerns about whether the benefits are being shared widely enough.

 

By contrast, economic prospects for South Africa are poor, with some commentators warning that Africa’s most developed – albeit no longer the biggest – economy is running a very real risk of retreating into recession again for the first time since 2009.

 

The protracted platinum strike has been a major drag on the domestic economy in the first half of the year. In addition, the strike has come on the back of what has been a fairly prolonged period of labour instability – a reality that has undermined output and exports, as well as confidence and investment.

 

Growth has suffered as a consequence, with the South African economy shrinking by 0.6% in the first quarter, when the mining sector contracted by a massive 24.7%.

 

The cumulative negative trade balance for the year stood at more than R40-billion at the end of April, while the country’s high unemployment rate has started to increase above the 25% threshold again and that is on the narrow definition of unemployment.

 

Much of the other data are equally concerning, with the Kagiso Tiso Purchasing Managers’ Index declining to a near five-year low of 44.3 index points in May – a portent of further manufacturing contraction. Inflation is rising, with producer price inflation climbing to 8.8% in April and consumer price inflation breaching the South African Reserve Bank’s (SARB’s) 6% inflation-target upper limit during the same month.

 

Then there are persistent concerns about electricity supply security, as well as mounting concern about the availability, quality and competitiveness of other infrastructure elements, from transport and telecommunications to water and broadband networks.

 

The SARB is still expecting 2.1% growth for the year as a whole, but this figure has been lowered from an earlier forecast of 2.6%. In February, then Finance Minister Pravin Gordhan predicted growth of 2.7% for 2014, but his successor, Nhlanhla Nene, is likely to have to moderate that expectation when he releases his Medium-Term Budget Policy Statement in a few months from now.

 

It is amid this distressing backdrop that we publish the 2014 edition of the Real Economy Year Book – a publication that aims to offer a fact-based snapshot of developments in selected industrial and mining sectors.

 

This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.

 

It indicates that not all sectors are equally affected by the domestic headwinds. Nevertheless, the overall sentiment is not what it should, or could be.

 

In this post-election phase, it is going to be critical for government to take the lead in rebuilding confidence, as a new injection of confidence is desperately needed if this country is going to escape from its current low-growth predicament.

 

Published on: 07 July 2014.