The Gauteng Business Barometer (GBB) jumped by six index points, or 3,7%, to 152 points in November, reflecting robust business activity in the country’s richest province.
This was 0,8% higher than the November 2005 level of 150 points.
Compiled by Standard Bank and T-Sec chief economist Mike Schüssler, the GBB shows robust business activity in virtually all sectors of the economy.
The top-performing industries in November were construction, trade (which includes retailers, wholesalers, restaurants and tourism sectors) and manufacturing. The only sector that reported a worse performance was the mining industry.
Schüssler cautioned, however, that higher interest rates and inflation will affect most businesses next year.
“The economic stress index, a sub-set of the GBB, for November shows an increase of 1,9% and 9% compared with October 2006 and November 2005 respectively. The economic climate is becoming more difficult due to higher interest rates and inflation, but most of the sectors should experience growth next year, although it will be slower.”
Standard Bank’s chief economist, Goolam Ballim, added that the spike in the GBB showed some volatility, which was not unusual at the crest of an economic cycle. “The reality is that inflation is rising, while nominal wage growth should remain steady. Therefore real wage growth is slowing and economic activity will also slow down in 2007.”
Ballim said these pressures would limit economic growth to about 4% for 2007, and that businesses would continue to taste the fruits of the golden era that South Africa had experienced in the last few years.
Schüssler and Ballim agree that the manufacturing sector will perform well next year.
“The use of capacity is over 85% and manufacturers will consider expanding their capacity through new plants and equipment. I believe this sector will continue to perform well next year and drive the economic growth,” Schüssler said.
“The worst may be over for this industry. On a trade-weighted basis, the rand remains more than 10% weaker compared with a year ago and Europe expects strong growth. Smaller players may look forward to the Finance Minister, Trevor Manuel, for a favourable budget. Combine this with the Department of Trade and Industry’s initiatives and you will create a more favourable environment,” Ballim added.
The construction sector will also experience a paradigm shift. “Higher interest rates will dampen activity in the residential market. There will be strong growth in constructing office, retail and industrial space, as well as government projects such as the Gautrain,” Schüssler says.
Ballim warned retailers to expect a slowdown in expenditure of durable and semi-durable goods early next year. “The growth rate in household consumption expenditure of 7% in 2005 and 6,5% in 2006 will slow to about 4,5% next year. This represents a huge loss of momentum. Although 4,5% is still good, it is slower than preceding years and businesses will feel the impact”.
The effect of this is already visible in the market, as sales of durable and semi-durable goods have slipped since the third quarter of 2006, he added. — I-Net Bridge