Cees Bruggemans – SA Growth

SA growth: fighting back

by Cees Bruggemans

It may defy every day impressions (you mean we are not in recession with new car sales -20% yoy, RMB/BER business confidence showing 2-out-3 business managers morose, and SARB leading indicator still diving?), but yes, we aren’t in recession. And this flavour may well linger.

Mining and manufacturing data for June yesterday completed their 2Q tallies – and production is up, not down. The story will repeat itself in other, mainly services sectors, with farming the only real (drought) dog still. This picture should not change materially in 3Q & 4Q, with the Barclays PMI trend line (manufacturing) well ahead of 50, as the Standard Bank one (for the broader economy) hugs 50.

Furniture, appliance and car sales way down (and upmarket property trends too) confirms the assertive FNB/BER consumer confidence finding (now is NOT the time to buy durables). With real household growth still positive and our retail spending (especially non-durables) not giving the ghost, it is the durable sector that offers a stark contrast, reflecting an deep unwillingness to buy (not an income inability). That unwillingness reflects personal caution, deep unease, standing back, preferring for now defensive pullbacks that don’t cost households much (delaying replacement for a year?).

Meanwhile, on the supply side of the economy, output is rising again. SA mining June production rose for a third month (+1.9% over May), led by iron ore and diamonds +23%, coal +4%, even as gold did -2% and platinum -12%. A mixed bag, still China iron ore and platinum mining dependent.

Can that be sustained? A qualified yes regarding iron ore, with platinum still a recovery play?

SA manufacturing also bounced for the third month in a row, with June output +0.7% on May. Year on year even better at +4.5%. This picture enhanced by base effects (an oil refinery back on stream that wasn’t there a year ago) and success in resisting Chinese import pressure, so overwhelming a year ago. Thus oil refineries June output +24% yoy, steel +23%, but chemicals generally also +19%. In contrast, cars -6% (still held up by exports) and furniture -8%.

On balance, the 1Q16 annualised GDP decline of -1.2% has probably been fully neutralised by the 2Q16 bounce, depending also on what net trade (positive) and inventories (the big question) did.

SA is not in recession, with the 2Q16 coming back in the way it has. Can we build on that in the 2H16? Looks likely, though staying modest in expectation.

Cees Bruggemans