Why is SA outlook improving?
by Cees Bruggeman
The SA growth prospect has wriggle room. Where in recent months there had been a collective dive for the bottom and growing competition to call a recession, this passion has in recent weeks/months much becalmed. Instead, there is this urge to call out higher growth numbers, as if having cleared a challenging sandbank with screeching bottom and deeper water again our prospect.
But it remains a bit of a mystery just what resides at the bottom of it all. Noticed anything that could function as engine, never mind as turbo? But then we argue, nearly like good Europeans (….) about a few growth decimals. As if in a previous life we ever took notice of the decimal point. But now this seems to have turned into a matter of life & death. It is up, it is up!!!! By a dismal decimal or two. But so be it. The tide has turned, the decimals are up. All we need to do is explain why. That is hard indeed.
Car sales in September went through the floor even a bit deeper than in previous months, hardly a positive indicator. New passenger car sales were nearly -15% yoy, and light commercials -14% yoy. Exports didn’t do as badly – only -6% but that is still down, something we haven’t seen from car exports for a while.
So both households (passenger cars) and businesses (light commercials) felt ever so strongly this September the need to tighten their belts, further extending replacement cycles. They didn’t do this with a song in their hearts. Instead one senses ever greater dread all round.
Meanwhile the Barclays/BER purchasing managers index, specifically focused on SA manufacturing, jumped nicely in September to 49.5(46.3), except that nobody seemed happy with an average 3Q16 index value of 49, below the sensitive 50 line and indicative of lingering weakness.
In a deeper sense, the current account deficit kept retreating towards 3% of GDP, indicative that exports might be gaining (somewhat) on retreating imports as general demand weakness, and an undervalued Rand, did their job over time of eroding imported demand.
Perhaps more happily, commodity export prices seemed to be adjusting higher, under the influence of a China regaining some lost industrial heft, even as anxiety about her overextended property market kept gaining global adherents. The number of believers in a Chinese banking (debt) crisis keep increasing. With so much financial smoke, can we really rely too much on a bit more industrial activity, stabilizing commodity demand and somewhat higher export prices? It smells so temporary. But then again there has been so much crying wolf about China that one cannot be sure that something definitely has to go wrong now. Instead, count those blessings in higher steel demand, higher commodity demand, higher export prices.
Something deeper might be stirring in our collective midst. Supposedly, the Minister of Finance is hunted game, and ripe for the pot. Yet he remains very lively, and few still seem to think his game will be up shortly.
Just so for our credit rating. You sense a general dread about what could happen within a month or two (junk), yet drill deeper and it seems many feel it ain’t going to happen. Treasury happily made hay while the sun is (still) shining, raising $3bn (two and a half times oversubscribed). That all this support may have more to do with an uncritical reading of our general status (they maintain their credit rating!) in a year in which so many countries have been downgraded, makes it less of a victory and more of an afterthought. But still, the generous over subscription has been noted. That was not really a vloek, now was it?
There seems to be much interest in us (going by reported New York conference attendances), and not all of it apparently convinced we will be junked. Another way of saying that our deeper politics is playing in favour of reform rather than of yet more patronage, but you need more than a magnifying glass to unearth this. Certainly, our universities are being thrashed, never mind some of our other higher institutions (SABC for instance).
Clearly, nobody expects to be disappointed by Gordhan when he presents his budget numbers next month. And that is probably first key to the rating issue, although our politics and future reform are a close second. A majority view seems to believe we remain a going concern. And one thing leads to another…
What you really need is faster income growth. And that seems to defy us. Credit growth is slowing down, nobody really believes employment is up. And although inflation seems to be eroding (and real income therefore gaining a notch or two) it is still extremely difficult to read “up” signals into any of this, especially as the leading industrialist keeps muttering about poor political leadership and keeps reinforcing overseas investment portfolios.
Business confidence has lifted last month, but that probably was the morning-after-the-night-before effect (the local election outcome giving a whiff of future reform prospects to come). Then again, not a few people seem to have lifted some of their moroseness (even if the internal Gauteng-Western Cape relocation steam train keeps proceeding at maximum speed).
As I say, an extremely difficult few decimals to read, as to why they should be up (0.5% GDP growth this year, more than double that next year) as compared to a far greater temptation to keep talking us into the ground.
But as the October Budget Moment keeps coming nearer, and the December rating moment, we seem to be collectively lifting those chins. Either something in the air or the water. Let’s hope it is for real and Gordhan delivers on cue, with the rating agencies still taking their sweet time.
That would spill us over into 2017 and yet newer realities. Not least globally as central banks, markets and a new US president set the tone. And our elective consultive political leadership conference finally comes into view.