The recent gross domestic product (GDP) figures may contain overwhelming good news, but they also point to sticky times ahead for labour and business as they continue to fight for a fair share of national income.
Statistics South Africa reported that the GDP for the second quarter grew by 4,8%, a figure made more remarkable by the fact that all 10 measured sectors reported positive growth.
The South African Reserve Bank also weighed in with its dose of good news when it released its annual economic report and noted, through governor Tito Mboweni, that its small contribution to the boom we are enjoying is keeping inflation in check and prices stable.
But Monde Mnyande, head of research at the Reserve Bank and a member of the monetary policy committee, dampened the mood slightly when, after reading out glowing macroeconomic fundamentals, he noted “the only blemish on this healthy picture is the paucity of jobs in the formal sector”.
Merrill Lynch economist Nazmeera Moola points to looming squabbles between bosses and workers. Moola notes that compensation growth remained healthy at 8,9%. This should support consumer spending in the next few quarters. But compensation is growing faster than operating surplus, which is used as a proxy for measuring profits. In agriculture, operating surplus fell by 15%, while compensation grew by 6,7%. In finance and real estate, operating surplus grew by 9%, while compensation grew by 11%.
Manufacturing, the star performing sector of these results, is one of the sectors where profit growth was ahead of wage growth. Operating surplus grew 9,4%, while compensation grew 6,9%.
Overall, operating surplus grew by 8,3% in the second quarter, up from 6,9% in the first quarter, but still lower than the 10,4% of the fourth quarter of last year. Compensation grew by 8,9% in total. Moola notes that this is “not exactly promising for productivity growth”.
The Reserve Bank notes that, although employment fell in late 2004, there was 2% growth in non-agricultural formal employment, according to Employment Trends, a report by the International Labour Organisation.
The bank also took heart from a Grant Thorton report which found that 57% of South African companies that employ between 50 and 250 people had expanded employment last year, while 51% said they planned to increase employment this year.
The bank also notes Stats SA’s quarterly employment statistics. It found that job losses from the last quarter of last year continued into the beginning of this year, but adds that the findings do not account for seasonal variation and therefore should not be deemed conclusive.
Manufacturing, which contributes 16,7% to GDP, grew by 7,3%, having shrunk by 1,5% in the first quarter. The Reserve Bank acknowledges that pockets of the manufacturing sector continue to struggle to remain internationally competitive in the face of the strong rand.
These “pleasantly surprising” figures have led most commentators to revise their overall growth forecast for the year upwards.
The Reserve Bank now estimates that the economy needs to grow by 3,5% in order for the economy to grow by 4% for the year.
Finally, the news of this robust growth was met with a consensus that it decreases prospects for a rate cut this year. Moola says that the only way we can see further cuts is if the rand strengthens to R6 to the dollar and if oil prices fall below $60 a barrel.