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Economic Research - by Annabel Bishop


We collate the Investec Group’s considerable analytical resources to provide reports with a South African market perspective.

South Africa is a medium-sized economy with a gross domestic product of R3 trillion and a population of 50 million. While GDP per capital measurements place SA in the middle income category, the country's very high level of income inequality means a large percentage of the population lives in poverty. The manufacturing and finance sectors are the largest and the retail sector the greatest formal private sector employer.

The South Africa economy grew by 2.5% in 2012 in an environment of weak global growth, and is expected to expand by closer to 3.0% y/y this year. The relative economic stability the ANC has achieved since 1994 provides a sound base from which to attain employment creating growth of 5-6%, although recent escalations in labour unrest and resultant investor uncertainty have undermined SA’s potential growth trajectory. Greater unity in the ruling tripartite alliance is now needed to ensure SA achieves the aims of the National Development Plan (NDP), an economic framework for the country until 2030 that aims to eradicate poverty and reduce inequality and unemployment, the latter to single digits, via sustained, accelerated real growth that trebles the size of the economy.

Latest Articles

Latest Articles

February retail sales growth subsides to 2.2% y/y, reflecting the weak nature of underlying consumer demand


Retail sales growth corrected lower in February, to 2.2% y/y, from the statistically distorted 6.4% y/y in January (revised down from 6.8% y/y previously), below market expectations of 3.8% y/y. Monthly growth contracted by 0.2% m/m on a seasonally adjusted basis, compared to an increase of 0.5% m/m in January.

Production growth slows in February, highlighting underlying weak momentum in economic activity


Relative to market expectations of a lift in manufacturing production growth, to 4.0% y/y in February, from 2.2% y/y (revised down from 2.5% y/y), the actual outcome of a slowdown to 1.4% y/y was disappointing.

Strike induced platinum output losses weigh on mining production – contraction of 4.8% y/y in February


Mining production figures for February reflect the effects of the strike action at platinum producers, Anglo American, Impala Platinum and Lonmin. Growth in mining production contracted by 4.8% y/y in February, following a rise of 3.7% y/y in January.

Gross reserves decline in March, principally on revaluation and transactional adjustments


Foreign exchange reserves decreased in March, to US$41.49bn compared to US$42.04bn in February, principally owing to revaluation adjustments. Specifically, the US$ strengthened moderately against the British Pound and the Euro. Aside from the revaluation adjustments, which can be approximated to USD 0.02bn, the remaining decrease, of R0.53bn, was ascribed to foreign exchange transactions conducted on behalf of clients, and activity related to foreign exchange swaps.

Manufacturing and mining production growth to be affected by transitory factors, underlying activity subdued


Key data releases in the week ahead


SA: Manufacturing Production, Mining Production, International Reserves
US: PPI, Jobless Claims, NFIB Small Business Survey, FOMC Minutes
Euro zone: ECB Monthly Bulletin

Consumer confidence remains depressed in Q1.14 and will restrain household consumption


Consumer confidence remained depressed in Q1.14, at -6 index points, compared to -7 in Q4.13.

Weakening trend in vehicle sales growth persists in Q1.14


The weakening trend in the growth performance of vehicle sales persisted in March, with the pace of contraction at 0.2% y/y, compared to 3.2% y/y in February. Annual vehicle sales growth was partially suppressed by statistical considerations relating to a higher base in March 2013. This does not however, detract from the underlying decelerating growth trend that has been in place since H2.13.

Annabel Bishop Profile

Annabel Bishop is Investec Bank Limited’s Chief Economist in South Africa. She joined Investec in 2001 and has worked in the macroeconomic and econometric field for 18 years. Annabel is the holder of the Sake/Beeld Economist of the Year title for 2010 and has won numerous monthly Reuters Econometer awards for correctly forecasting a range of economic variables.

Before joining Investec, Annabel was the Economic Analyst at Econometrix, providing key macroeconomic research and specific project work to a variety of clients across the economy, as well running the firm’s econometric model. She holds a cum laude master’s degree in economics and econometrics from the University of Pietermaritzburg in South Africa and left McCarthy Bank in 1998, where she held the position of SA economist.

Higher gold price and US$ depreciation lift gross reserves in February


In February, gross reserves increased to US$50.14bn from US$49.35bn in January, owing to a rise in both gold and foreign exchange reserves, stemming primarily from revaluation adjustments.

Government announces measures to minimise risk of over-indebtedness of households, and assist those in a debt trap


National Treasury (NT) and the Department of Trade and Industry (DTI) today announced moves to protect consumers and assist over-indebted households. This is essentially aimed at unsecured (income based) lending to household.

Focus falls on containing current expenditure as government projections on the economic growth outlook dims


The Medium-Term Budget Policy Statement (MTBPS) this year clearly conveyed the message that expenditure will be contained, and where possible reduced, and that there is no space for any additional allocation of resources without jeopardizing the health of public finances. Specifically, the statement said “the economic and fiscal outlook has weakened” … “just as space for countercyclical policy interventions has narrowed.” There has been a clear shift in this year’s MTBPS toward curtailing costs and maintaining expenditure within previous limits, and this focus on the expenditure ceiling is positive both for the investment climate and SA’s credit ratings.

The need for change in Public Sector Policy to stimulate the investment climate


South Africa has seen substantial rand depreciation recently for a number of reasons, but one of which is the dilution of leadership provided by government as different factions of the ANC and its tripartite alliance pull in different directions, creating a lack of policy clarity. This is problematic as companies need to be able to price risk in the investment climate. That is corporates must be able to plan reasonably successfully for the future to operate profitably. If a company cannot adequately price risk it cannot increase investment and employment.

SARB keeps interest rates unchanged in line with guidance of measured approach to policy tightening


In line with consensus expectations, the SARB opted to keep the benchmark repo rate unchanged at 5.50%.

The well managed budget has strengthened the rand, SARB now signals interest rate upward trajectory will be measured


After the sudden 0.5% rise in the repo rate in January the Governor of the South African Reserve Bank (SARB) has said future interest rate hikes will be measured, a word which usually means considered, careful and calculated.

The Reserve Bank provides little guidance as the market prices in a further 2.00% hike in interest rates for 2014


South Africa faces a decelerating economic growth environment this year on higher interest rates and prices following the rand’s depreciation.

SARB hikes the repo rate by 50bp, to 5.50%, as inflation risks are prioritised over economic growth


In contrast to market expectations, the SARB opted to raise the benchmark repo rate by 50bp to 5.50%, which marks the first change in interest rates in nearly a year and half. The key motivating factor behind the decision to raise the repo rate was the deterioration in the SARB’s assessment of the inflation outlook.

PPI rises in February on currency and grain related cost pressures which should dissipate in the coming months


PPI inflation for February increased to 7.7% y/y, from 7.0% y/y in the previous month, coming in stronger than consensus forecasts of a 7.2% y/y rise. In m/m terms, PPI rose 1.3% in February versus a prior 1.0%.

Core CPI inflation has remained steady at 5.3% y/y since September 2013, indicating lack of pass through from rand depreciation


CPI inflation edged marginally higher to 5.9% y/y in February, from 5.8% y/y in January, in line with market expectations. In month to month terms, consumer price growth rose at a rate of 1.1% m/m compared to a prior 0.7% m/m. CPI inflation excluding food and NAB, petrol and energy (or core inflation), remained steady, at 5.3% y/y, for the sixth consecutive month as underlying inflationary pressures remained contained.

PPI rises significantly in January on start of the year price increases, pass through to CPI likely limited in extent


Producer price inflation increased for the third consecutive month in January, to 7.0% y/y from 6.5% y/y in December. The increase was somewhat stronger than the 6.8% y/y consensus forecast.

The upward trajectory in CPI inflation will be reversed in the second half of 2014, the breach in the target proving very temporary


January 2014’s CPI inflation rate came out at 5.8% y/y, slightly above consensus of 5.7% y/y. A key driver, the 0.2% m/m rise in petrol prices will repeat in the February inflation print, and potentially the 0.2% m/m contribution from food prices as the effects from the drought feed through. Nevertheless, CPI inflation is likely to remain within target for the majority of this year.

An absence of meaningful job creation in Q4.13 will weigh on consumer confidence and consumption expenditure


The employment data contained in the Q4.13 Labour Force Survey has been updated with revised population estimates. StatSA noted that “[t]he revised estimates of the working age population; employment; and unemployment are higher than previously published but this has had little impact on key labour market rates such as the unemployment rate, the labour absorption rate and the labour force participation rate.”

Weakening demand restricts vehicle sales growth at the start of 2014


The slowing momentum in car sales growth, established in H2.13 has been sustained into 2014. Specifically, vehicle sales growth contracted by 6.8% y/y in January, marking the weakest growth rate in nearly three years. In January, growth contracted across all of the main categories of passenger, commercial and export sales.

Slowing credit extension, coupled with interest rate hike, will dampen growth in consumption expenditure this year


The private sector credit extension (PSCE) data for December comes in the wake of the SARB MPC decision to hike interest rates by 50bp to 5.50%. Specifically, growth in PSCE slowed to 6.1% y/y in December from a prior 7.0% y/y, and by more than market expectations of 6.8% y/y. This accords with the SARB’s view of a “modest rise in credit extension” which will contribute to constraining growth in household consumption expenditure. Nevertheless, the prospects of higher inflation appear to have outweighed the risk of a deterioration in economic growth for the SARB in its interest rate deliberations.

November’s rebound in retail sales growth to 4.2% y/y will not be sustained as consumers are under pressure


Retail sales growth rose by 4.2% y/y in November versus a prior 1.4% y/y, exceeding market expectations of a 1.1% y/y increase. On a seasonally adjusted basis, retail sales expanded by 1.2% m/m compared to -0.3% m/m in October. However, the November growth performance merely reflects a rebound in retail sales, as workers returned to work and again received an income, following strike action in a number of industries in prior months.

Manufacturing update: Growth in manufacturing production rebounds in December but decelerates in 2013 as a whole


The rate of expansion in the manufacturing sector quickened to 2.5% y/y in December from a prior 0.3% y/y and versus market expectations of 2.2% y/y. On a seasonally adjusted basis, manufacturing production rose by 0.4% m/m compared to the decline in growth in November of 0.6% m/m.

PMI indicates that activity in the manufacturing sector fell at the start of 2014


In January, the manufacturing PMI remained just below the 50 mark, which separates expansion from contraction, at 49.9. The PMI was unchanged compared to December, and just 1 point higher than in January 2013. At this level, the PMI indicator of manufacturing sector operations signals a weakening pace of activity.

Import and export growth continued to diverge in 2013, pressuring the trade deficit


South Africa’s international trade balance remained in surplus in December, at R2.78bn, versus a surplus of R0.69bn in November. The surplus recorded in December was however, 12.6% y/y lower than in December 2012.

Growth in mining production slows as statistical base effects are less pronounced in November


Growth in mining production retreated, from 23.0% y/y (revised from 22.0% y/y previously) in October, to 5.1% y/y in November, as favourable statistical base effects dissipated. The disruptive effects on production, of widespread strike action in the gold mining industry in October 2012, had established a lower base that, boosted growth in production in October 2013.

Rand quick note: the recent weakness is mild historically, and we still expect strength by year end, but the risks are high and rising


Despite the rand reaching R10.96/USD, R14.92/EUR and R17.92/GBP this year, from R10.38/USD, R13.92/EUR and R16.60/GBP in November 2013, this depreciation is neither as rapid, nor severe, as the depreciations that took place in 2001 and 2008.

QE tapering has been substantially priced in, but the resultant currency weakness is yet to raise SA’s competitiveness


The down case scenario of premature liquidity withdrawal from emerging markets (EM) on expectations of future quantitative easing (QE) tapering, escalating strike action and a downgrade to SA’s credit rating manifested in part in Q4.13 (and Q3.13).

Stable hand of SA’s authorities result in the domestic currency being rewarded – rand performs among the best


The FOMC announcement in June that the Federal Reserve Bank would look to taper its US$85bn per month quantitative easing programme caused EM currencies to depreciate significantly (see figures 1 and 3), with the Indonesia rupiah and India rupee the worst hit, whilst the Brazilian real and Turkish lira also depreciated by more than the rand (see figures 1, 3 and 5 to 8).

Rand quick note: the domestic currency runs persistently weaker on the perceived, increased likelihood of September QE tapering


Evidence of continued deterioration in the financial health of South African households builds ahead of the March MPC meeting


With the first quarter of 2014 drawing to a close, the SA Reserve Bank published key Q4.13 data today relating to the current account deficit, fixed investment and household consumption expenditure, debt and disposable incomes. The quarterly bulletin shows that the current account deficit narrowed to 5.1%, from a revised 6.4% of GDP in Q3.13, while fixed investment real growth decelerated in Q4.13 driven by slower capex spend in the private sector and real growth in household consumption expenditure slowed further. The outcome is indicative of a continued slowdown in underlying real economic domestic demand.

Higher SA bond yields in Q3.13 stimulated foreign purchases as markets priced in QE tapering to a significant degree, reducing the likelihood of 2014 rand blowout


The Reserve Bank (SARB) looks at GDP growth from the income side and Statistics SA from the production side, with the latter published for Q3.13 on 26th November (see “GDP Snapshot: weak growth outcome of 0.7% qqssa reflective of slowdown in consumer spending and work stoppages”, 26th November 2013). The income side reveals that the slowdown in economic growth, to 1.8% y/y from 2.3% y/y in Q2.13, was driven by weaker real growth in consumption by government and households. On government consumption expenditure the SARB says “the slower pace of increase reflected government’s efforts to curtail spending with the aim to restrain the budget deficit”.

Q2.13 current account deficit swells on merchandise trade and portfolio investment activity


In the second quarter of 2013, South Africa’s current account registered a deficit of R216.2bn which translates into 6.5% of GDP. At this magnitude, the deficit swelled, as a percentage of GDP, from the 5.8% deficit in Q1.13. The Q2.13 deficit also exceeded market expectations of a 6.1% of GDP deficit.


Household sector continues to weaken, debt servicing costs rise


The slowdown in GDP growth in Q1.13, from 2.1% qqsaa to 0.9% qqsaa, was driven by slower growth in fixed investment and household spending, while a sharp rise in imports occurred due to rand depreciation, higher oil prices and accelerated growth in imports of capital equipment. Growth in imports of household consumption goods slowed.

Manufacturing and mining production growth to be affected by transitory factors, underlying activity subdued


Key data releases in the week ahead


SA: Manufacturing Production, Mining Production, International Reserves
US: PPI, Jobless Claims, NFIB Small Business Survey, FOMC Minutes
Euro zone: ECB Monthly Bulletin

Trade, credit and vehicle sales data to be congruent with weaker domestic demand and subdued consumer confidence


Key data releases in the week ahead

SA: Trade Balance, M3, PSCE, Vehicle Sales, PMI, Consumer Confidence
US: Non-Farm Payrolls, Trade Balance, ISM Index
Euro zone: Interest Rate Announcement, Final PMI

MPC likely to pause in March as the data indicates a measured (gentle) interest rate hike trajectory is more appropriate


Key data releases in the week ahead

SA: PPI, SARB Interest Rate Announcement
US: Consumer Confidence, New Home Sales, Durable Goods, GDP
Euro zone: Preliminary Composite PMI, Economic Confidence, M3 Money Supply

Retail sales to reflect slowing growth trend in real household consumption expenditure and disposable income


Key data releases in the week ahead


SA: CPI, Retail Sales, Quarterly Employment Statistics
US: Empire State Manufacturing, CPI, Housing Starts, FOMC Interest Rate Announcement
Euro zone: Final CPI, Preliminary Consumer Confidence

A perpetuation of the US government shutdown would see rand, bond strength on a likely delay in Quantitative Easing tapering


The US government shutdown has seen some strength in the rand on US dollar weakness. Should the closing of many non-essential state services in the US stretch to a week or more, then domestic markets are likely to feel an even greater impact.

FOMC decision not to taper strengthens rand, increases still low probability of a November 25bp interest rate cut in South Africa


The Federal Reserve Bank’s decision not to scale back the amount of assets purchased per month (taper the quantitative easing programme of US$85bn to US$75bn, or US$73bn, a month) caught the markets by surprise as a reduction in QE was factored in (see EM currencies update: stable hand of SA’s authorities result in the domestic currency being rewarded – rand performs among the best, 11th September 2013).

The end of easy credit conditions equals slower economic growth, a negative for commodity producing countries such as SA


Before the global financial crisis, China relied on exports to fuel economic growth, a strategy that allowed for it to substantially build up its foreign exchange reserves (to over USD3trillion) and increase the economy’s size.

Euro zone sovereign debt crisis: the pain trickles down as a precedent for future bailouts is set by the proposed Cyprus wealth tax


Cyprus became the latest country to seek a bailout from the euro zone this week, which was not unexpected. However, the funding mechanism of the bailout, which makes use of a tax on individual’s savings in their bank accounts, came as a shock to markets, so much so that it reawakened fears of an escalation in the sovereign debt crisis and increased risk aversion levels globally.

Economic Outlook for 2014-2018: recalibrating for a higher interest rate environment sees the economic growth outlook weaken


South Africa likely saw economic growth average below 2.0% y/y in 2013, and 2014 is now at risk as the interest rate cycle has turned. The United States is expected to begin raising its interest rates in 2015 (75bp) and by 2018 the fed funds rate is expected at 4.00%.

Quarter 1 2014 - Economic Forecasts: 2012 - 2018


Quarter 4 - Economic forecasts 2013 to 2018: the drivers of South Africa’s weakening economic growth detracts from the long-term outlook


After the global recession of 2009, SA experienced two years of economic growth above 3.0% y/y, a year of growth just below, at 2.5% y/y, and this year the economy is likely to expand at best by 2.0% y/y.

Quarter 3 - Economic Forecasts: 2012 -2017