TRYING TO FIND SILVER LINING IN STORM CLOUDS
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