/ 6 January 2012

SA’s economic prognosis is good

Sa's Economic Prognosis Is Good

The South African economy is showing signs of life and 2012 could see some green shoots in spite of the bleak global environment and the risks posed by the eurozone crisis to domestic trade and markets.

Recent data show that 2011 was a good year for South Africa, indicating a healthy road ahead for the local economy. Retail sales, consumer spending and credit demand continued to rise for the year, with residential rental rates increasing and government tax revenue healthy.

Not least of all, Statistics South Africa said 393 000 jobs were created in the formal sector in the 12 months to the end of September, marking the first significant move towards meeting the new growth path target of 500 000 new jobs a year since the 2008 global economic crisis plunged South Africa and other countries into a recession.

However, state jobs accounted for 40% of the total. Stanlib chief economist Kevin Lings said third-quarter job gains appeared to be reasonably broad-based, with six of the seven major private sectors of the economy gaining jobs.

Tempered by other job losses, largely in the informal sector, the overall number of new jobs on a net basis for the year was 343 000, a year-on-year improvement of 2.7%. The biggest growth since the 2009 recession took place in the third quarter of 2011 — up 1.5%, according to the quarterly labour force survey.

Although unemployment at 25% remains a critical issue, it was reduced by 96 000 in the third quarter, according to StatsSA, the first decrease recorded in 2011. The JSE was one of the best performing bourses in the world.

Bloomberg data showed that the global market capitalisation of the bourses dropped by 12% to $45.7-trillion but First National Bank chief executive Michael Jordaan tweeted that the JSE’s market cap had remained flat.

A healthy gross tax revenue for 2011 of R425-billion, up from R388-billion in 2010, suggests South Africa’s budget deficit may come in below forecasts for this year, which would bode well for the economy and investors.

Adrian Saville, chief investment officer at Cannon Asset Managers, said the tax revenue figures released by the treasury this week pointed to resilient underlying economic activity, with value-added tax (VAT) revenue up 26%, excise duties up 37% and personal tax up 14%.

Saville said critics would say that tax could be higher because of higher imports or that a portion of consumption could be funded by debt. But the broader view showed a robust economy. Consumer appetite and the demand for credit were also growing.

Credit demand was up 6.2% year on year, according to Reserve Bank figures for November and in December the National Credit Regulator said the number of applications for credit rose by 20.83% in 2011.

The regulator’s figures showed a 13.36% increase in new credit granted to consumers compared with June 2011. In September 2011 the total outstanding consumer credit balance was R1.27-trillion, reflecting a quarter-on-quarter growth of 3.24%.

Although the property market remains depressed, rental income grew by 6.6% last year. The PayProp Rental Index found the national average rent in November was R5116 a month, up from R4797 a month in the previous year.

Mike Schüssler, economist and developer of the index, said the rising rates showed an improvement on return on investment. “We need rentals to improve before property prices will improve,” he said. Notwithstanding moderate gross domestic product growth and rising inflation, most domestic sectors have recuperated from the recession.

Retail spending grew by 7.4% year on year in October, according to Stats SA, and Adcorp economist Loane Sharp said current retail sales were 20% higher than they were at the pre-recession peak. “In fact, all industries except production sectors have experienced a complete turn-around. The economy’s domestic growth is strong from a consumption point of view,” he said.

The oil price also offered some relief to consumers this week. Unleaded 95 dropped by 5c, 93 by 6c and diesel by 20c.