The recovery of South Africa’s economy may be running ahead of its still-limping consumers. Although the quarterly gross domestic product (GDP) figures released this week suggest recovery is on the way, further declines in sectors that rely on domestic consumer activity suggest pain for the man on the street is still severe.
The seasonally adjusted and annualised GDP shrank by 3% in the second quarter of 2009. This is a marked improvement on the 6,4% decrease seen in the first quarter of the year.
Analysts point out that the economy is still shrinking, for the third consecutive quarter, the likes of which has not been seen for about 15 years.
Annabel Bishop, a group economist at Investec South Africa, warned in a research note on Wednesday that the GDP figures may have to be revised downwards.
”The GDP figures do not capture all the data for the quarter, due often to surveys of activity being submitted late. In particular June’s retail sales and building statistics are not included, which means that the [second quarter] figure is likely to be revised weaker,” she said.
But economists point out that the slowdown is slowing. Sectors seeing a marked improvement are those, such as mining, that are better integrated into the international economy, according to Dawie Roodt, the chief economist at the Efficient Group. They have seen better performance since the global economy has picked up pace. Countries such as Germany, France and Japan have already emerged from the recession.
Mining and quarrying saw 5% growth in the past quarter, compared with the very poor -32,6% seen in the first quarter of the year.
Manufacturing also showed signs of improvement. Although it still shrank at a rate of -10,9% in the second quarter, this was much improved on its first quarter figure of -22,1%.
”Initially the greatest impact of the global recession was felt by the internationally integrated sectors. These were largely export-driven and now we are seeing a flow-over into the more local sectors,” said Roodt.
Other sectors doing well are those that are benefiting from counter-cyclical measures put in place by the government.
Counter cyclical measures are steps taken to counter the economic trend. The increased spending on infrastructure, for example, is working to counter the weakened growth cycle, boosting sectors such as construction, which grew by 12,2% in the second quarter, although this was marginally down from 14,7% in the first quarter. The reason for any growth in this sector this year is national projects such as power station and pipeline construction by Eskom and Transnet.
The picture for the residential building sector is less sunny. The real value of all building plans passed in June fell by 24,7% year on year, according to Stats SA. Bishop noted that this was driven by the residential sector and paints a ”gloomy picture” for the construction sector in the third quarter of the year.
From the beginning of January the real value of residential building plans passed fell by 46,5% year on year compared with 2008’s fall of 19,4% according to Bishop.
Sectors reliant on local consumer activity performed poorly, suggesting that consumers are still faced with shrinking income and a great deal of insecurity. Among the worst performers were the wholesale and retail trades and the hotel and restaurant industry, which decreased by 4,5%.
”For so-called green shoots to translate into real economic recovery, we need to see the consumer come back globally, which we have not,” said Stanlib economist Kevin Lings.
”Retail spend in the United States is still very weak, suggesting that the US consumer is saving, paying off debt and not engaging fully with the economy,” he said, adding that South African consumers remained equally cautious.
According to Stanlib data, in the three months to June 2009, retail sales were down a hefty 6,0% year on year in real terms.
”The consumer makes up 60% of the economy,” said Lings. ”We need the consumer to re-engage to bring about recovery.”
Jacques du Toit, a senior property analyst at Absa, said the ratio of household disposable income to debt is currently at 77%. This does not reflect households taking on more debt, he said, but is a sign that household income is shrinking because of job losses.
Recent lows in mortgage advances, which shrank to 8,2% in June from 9,4% in May, reflect tighter lending criteria but also an unwillingness by consumers to take on more debt, he said. ”Ironically this is the best time to invest in property, given the low interest rate environment and continued house-price deflation.”
House-price growth shrank by 4,2% year on year in July, according to Du Toit. This is well down from 2004 highs, which saw house-price growth of about 32%.
Although economists expect positive growth in the last quarter of 2009 or early 2010, it will be far below what has been seen in the past.
Roodt is concerned that growth will be hampered worldwide as countries continue to take on debt to stimulate their economies.
”Eventually countries will need to pay off that debt and this will have a negative effect on growth. It’s not sustainable,” he said. ”We may not necessarily see recession, but growth will be very slow.”
