THE real economy is limping along, if Thursday’s mining and manufacturing numbers are anything to go by.
That doesn’t necessarily mean we are in a recession, technically speaking. But it does confirm that economic growth is likely to be extremely weak this year.
It suggests, too, that the Reserve Bank’s monetary policy committee will have an interesting time (as always) when it meets next week. That is especially so given the latest set of minutes from the US Federal Reserve, which confirm that “tapering” will end in October — but don’t provide clear signals on the big question of when exactly the Fed will start hiking interest rates.
It’s an important issue for our central bankers because if they are looking to ensure SA is not behind the curve on interest rates, it would be good to have a notion of what that US curve might look like.
But the data on SA’s economic performance are likely to weigh more heavily. The latest monthly figures show a picture of the production side of the economy that is gloomier than expected — and the platinum strike was by no means the only culprit. After the economy went negative in the first quarter, the market has been looking closely at the monthly figures to try to predict how the second quarter might turn out. April’s data had been stronger than expected, but that was not the case in May, when mining output fell 3.1% from April, worse than the consensus forecast of a 1.7% decline.
The sector’s output declined by 2.1% even without the platinum metals, so it was not just about the strike. Electricity supply constraints must have featured too, and with the strike now ended, the next set of figures could show what else might be at play in mining.
Manufacturing, too, may have been hit by the downstream effect of the strike, but the sectors that were hardest hit in May were related to sluggish domestic and export demand. Manufacturing output was down 3.3% over the month, much worse than the consensus forecast of a 0.8% decline, and the worst declines were in subsectors such as furniture — not surprising given weak consumer demand for durable goods — and electrical machinery and vehicles.
With the National Union of Metalworkers of SA now out on strike, manufacturing production is likely to be hit again in the third quarter. Manufacturing and mining are not the largest sectors of the economy, but together they make up a sizeable chunk, and when production in those sectors is falling, it affects the other services sectors of the economy too.
Household spending is growing slowly, and the same goes for investment, especially by the private sector, all of which means domestic demand is not going to be a big growth driver soon.
For the rest of this editorial, click here: http://www.bdlive.co.za/opinion/editorials/2014/07/11/editorial-gloomy-outlook-for-sa-economy