It might be summer in the northern hemisphere but the chilly winds that have seen budget deficits slashed by many countries are continuing to blow, with the United Kingdom this week tabling an emergency austerity budget which has been dubbed “pain now, more pain later”.
Back home we have a real winter, with bitterly cold weather and troubling times, too, for the economy, as is seen in unemployment data from StatsSA which shows that 80 000 formal jobs were lost in the first quarter of this year.
In Europe if you have a job, particularly in the public sector, which faces job cuts in some countries, you are lucky to be able to hang on to it and have been told not to expect an increase for some time to come.
Back home, amazingly, even in a sea of unemployment, the employed have managed to win good increases for themselves, average monthly earnings per employee rising by 16,4% over the year to end March 2010, from an average of R96 14 to R11195 a month.
Stanlib economist Kevin Lings says that the 16,4% increase, which compares extremely favourably with the latest consumer inflation figure of 4,6%, points to a combination of regulation favourable to labour and the strength of the trade unions.
He says company earnings are up, not because revenues are particularly high but because the companies have cut costs, including through paying off unwanted staff. Those who have kept their jobs are benefiting from higher wage settlements.
Lings says that wage increases at home are “anomalous to general market conditions. Europe has seen an increase in job losses, and wages are not going up at all.”
If employed people are earning more, are they spending more? The latest StatsSA data shows that retail sales fell slightly on a month-by-month basis in April, but a positive 3,2% year on year. “StatsSA has indicated that April was the fourth consecutive month in which retail sales have been positive on an annual basis,” says Lings.
He says that “on a trend basis SA retail sales are clearly improving but the rate of improvement remains relatively sluggish. Most categories of consumer spending appear to be on the mend. There was a very noticeable surge in sales of appliances in April, possibly television sets ahead of the World Cup.”
Despite higher wages and administered prices, those controlled by the government, economists predict inflation will remain relatively benign during 2010. They say Reserve Bank governor Gill Marcus has room to announce a 0,5% interest rate cut, perhaps as soon as next month.
Investec’s Kgotso Radira says the outlook for job creation is weak but should gradually improve as the economic recovery gathers momentum.
“With inflation likely to drop to 4% before year-end and domestic demand weak, there could be room for a further interest rate cut, perhaps as early as the July monetary policy committee meeting.”
Radira says that, despite the gloomy outlook internationally, emerging economies are showing resilience, with a number growing more than 5% a year. He says demand from emerging economies has meant that commodity prices have not collapsed.