Consumers uninspired by good news
Trade and tax data have improved the outlook marginally, but consumer spending remains cautious.
The heat of last week's debate that South Africa is experiencing an "economic bubble" about to burst could be slightly tempered by economic data that might allow for cautious optimism.
The week started with welcome news from two of the state's biggest guardians of cash: the South African Reserve Bank and the South African Revenue Service (Sars).
First, the Reserve Bank announced that the country had experienced a trade surplus of R1.72-billion in February. This was a pendulum swing from January’s R17.1-billion deficit (a month that traditionally records sizeable trade deficits) and it was the country's third trade surplus in four months. It was also a rosier outcome than expected, as analysts had predicted a R3.5-billion deficit.
"The improvement in the trade position was underpinned by slower annual import growth relative to export growth," said Investec economist Kamilla Kaplan.
Other cheerful news quelling the bubble theory raised by a Forbes columnist came in the announcement of last year’s tax collection. As the fiscal year wound up on Tuesday, Finance Minister Pravin Gordhan said that Sars had collected R899.7-billion, R700-million more than anticipated.
The extra income means that South Africa will confidently meet its budget deficit target of 4% of gross domestic product (GDP), a feat that has been largely applauded as the manifestation of fiscal discipline.
"The extra revenue we got in this financial year gives us an opportunity to start consolidating our fiscal position and reduce the amount of money we have to borrow," said Gordhan.
Government debt-to-GDP ratio is 39.9% – hovering just below the upper limit of 40% that the International Monetary Fund recommends for developing countries.
Consumer confidence also improved marginally, although it remained poor. The FNB/BER consumer confidence index released on Wednesday went up from -7 points to -6 points. Despite the increase, it is "only marginally higher compared to the decade low of -8 reached during the third quarter of 2013", the bank said in a note.
Consumers' rating of the outlook for the national economy improved slightly, and their views of their own financial prospects remained unchanged from last month.
But this didn't translate into a willingness to spend. "Rating of the appropriateness of the present time to buy durable goods deteriorated to the lowest level since the 2009 recession," noted the bank.
On Tuesday, the manufacturing sector Purchasing Manager’s Index (PMI) gauge remained just above the no-change mark of 50 points. Kaplan explained that this indicated "ongoing marginal improvement in business conditions". She noted, however, the pace of activity actually decelerated from January, with headline PMI falling from 51.7 to 50.3 over the two months.
Vehicle sales also dampened the cautiously positive updates. Total sales decreased by 3.4% year on year in the first quarter of 2014.
According to Kaplan, economic activity can still safely be described as slow. "This strengthens the argument for maintaining a measured approach to monetary policy normalisation."