TRY­ING TO FIND SIL­VER LIN­ING IN STORM CLOUDS

Financial Mail - Investors Monthly - - Opening Bell -

Those who know how eco­nom­i­cally crip­pling a strike can be must have cel­e­brated an an­nounce­ment that public-sec­tor wage ne­go­ti­a­tions had been set­tled with­out a strike. But the ela­tion is slowly fad­ing. Some unions, un­happy with gov­ern­ment’s an­nounce­ment that it will now give a 6,4% in­stead of a 7% wage in­crease, threat­ened to strike. Gov­ern­ment took the de­ci­sion in or­der to claw back money from pre­vi­ous salary in­creases af­ter ac­tual in­fla­tion turned out to be lower than forecast at the time of the agree­ment.

While we waits to see what will hap­pen on that front, wage ne­go­ti­a­tions in the gold sec­tor got un­der way. If the seven-month wage talks in the public ser­vice are any­thing to go by, then ne­go­ti­a­tions in the gold sec­tor look set to drag on, given the steep wage in­crease de­mands.

It can only be hoped that things do not es­ca­late to a strike as this will put fur­ther strain on al­ready weak pro­duc­tion amid low com­mod­ity prices.

The latest avail­able Re­serve Bank data show that the fix­ing price of gold on the Lon­don mar­ket re­ceded by 6,4% in the fi­nal quar­ter of 2014, de­clin­ing from $1 283 per fine ounce in the third quar­ter to $1 200 per fine ounce, in part due to a stronger US dol­lar. The Bank also says a mar­ginal in­crease in the phys­i­cal quan­tity of gold ex­ports, to­gether with a 2% de­cline in the av­er­age re­alised rand price of gold in the fourth quar­ter of 2014, re­sulted in the ex­port earn­ings of South African gold pro­duc­ers fall­ing by about 1%.

Things are not look­ing so bright on the eco­nomic front. The only good news is SA hav­ing avoided sov­er­eign rat­ings down­grades from both Fitch Rat­ings and Stan­dard & Poor’s this month. Even these two agen­cies are wor­ried about the slow­down in the coun­try’s eco­nomic growth mo­men­tum, the ef­fects of load-shed­ding on growth and the large cur­rent ac­count deficits.

Al­most all other data are close to de­press­ing. The con­se­quences of load-shed­ding on out­put are more pro­nounced than ini­tially thought, as min­ing and man­u­fac­tur­ing data re­leased this month show. Busi­ness con­fi­dence has also taken a dive.

Min­ing pro­duc­tion mod­er­ated sharply to 7,7% year on year in April from 19,5% in March while man­u­fac­tur­ing out­put con­tracted by 2% year on year in April af­ter in­creas­ing 4% in March.

What is wor­ry­ing about the growth in min­ing out­put is that it is mainly driven by low base ef­fects cre­ated last year when plat­inum min­ers went on strike, rather than by a mean­ing­ful ac­cel­er­a­tion in pro­duc­tion. Mean­while, the con­trac­tion in man­u­fac­tur­ing im­plies that the sec­tor — and its con­tri­bu­tion to eco­nomic growth — got off to a slow start at the be­gin­ning of the sec­ond quar­ter. This is af­ter man­u­fac­tur­ing fell by 2,4% in the first quar­ter.

The fact that load-shed­ding is still ex­pected to con­tinue for many more months, while the risk of strikes still ex­ists, dims hopes of eco­nomic growth strongly gain­ing mo­men­tum in the quar­ter end­ing June.

Also dis­cour­ag­ing is the con­tin­ued de­cline in busi­ness con­fi­dence. The quar­terly Bureau for Eco­nomic Re­search busi­ness con­fi­dence in­dex, spon­sored by Rand Mer­chant Bank, fell again to 43 in the sec­ond quar­ter af­ter shed­ding two points to 49 in the first quar­ter. Lev­els of around 43 were last seen early in 2014 dur­ing the pro­tracted strike by plat­inum min­ers.

If SA was a coun­try strong in sav­ings, it would not mat­ter what the busi­ness sen­ti­ment was. But with SA be­ing so de­pen­dent on

It seems the sen­ti­ment is to tackle high fu­ture in­fla­tion and leave other poli­cies to worry about rais­ing the pace of eco­nomic growth

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