Pes­simism deepens

But per­haps there’s a glim­mer of hope

Finweek English Edition - - Companies & Markets -

THE NEWS HEAD­LINE in the Lon­don Fi­nan­cial Times of 27 Jan­uary couldn’t have been more stark: “Gloom deepens as 76 000 global jobs to go.” Those job cuts were an­nounced in just one day. The New York Times re­ported that even Microsoft, which usu­ally fo­cuses on the long term, an­nounced its first sig­nif­i­cant job cuts ever. Just days be­fore, Bri­tain – with dis­mal gross do­mes­tic prod­uct growth of -1,8% for fourth quar­ter 2008 – joined the ranks of the United States, Ja­pan and Ger­many in re­ces­sion. That’s the first re­ces­sion in Bri­tain since 1991.

US growth fig­ures for the fourth quar­ter have yet to be an­nounced, but the coun­try is al­ready re­garded as be­ing in a re­ces­sion on the ba­sis of a range of eco­nomic statis­tics as judged by the Na­tional Bureau of Eco­nomic Re­search (NBER). The NBER doesn’t just look at GDP growth in defin­ing a re­ces­sion, which has to be neg­a­tive for two con­sec­u­tive quar­ters to meet the most pop­u­lar def­i­ni­tion of a re­ces­sion. The NBER also looks at many other in­di­ca­tors. But all signs point to the fact that, when the US GDP fig­ures are re­leased, it will be ugly.

Absa says its US an­a­lysts have re­vised down their fore­casts for GDP growth in fourth quar­ter 2008 to -5,5% from a pre­vi­ous -4,5%. For 2009 as a whole, Absa’s economists ex­pect the US econ­omy to con­tract 1,9%. The bank’s Euro­pean an­a­lysts have also re­vised down their fourth quar­ter GDP es­ti­mates to -5,2% “fol­low­ing ev­i­dence of an out­right col­lapse in in­dus­trial out­put, par­tic­u­larly con­cen­trated in the auto sec­tor (on ac­count of wide­spread shut­downs)”.

Against the back­drop of al­most re­lent­less global gloom, some an­a­lysts in SA have caught the de­spon­dent mood and are also in­creas­ingly pre­dict­ing this coun­try will fall into re­ces­sion (as de­fined by two quar­ters of neg­a­tive GDP growth).

Lat­est to join the ranks of those pre­dict­ing a re­ces­sion is Ned­bank, which sees over­all growth of just 0,6% for this year as a whole and a re­ces­sion stretch­ing from fourth quar­ter 2008 to first quar­ter 2009. Ned­bank econ­o­mist Nicky Weimar says SA’s re­tail, min­ing and man­u­fac­tur­ing in­dus­tries are in re­ces­sion and growth in the fi­nance sec­tor will slow down con­sid­er­ably. The re­sult will be mar­ginal con­trac­tions in GDP in the fourth quar­ter and first quar­ter.

Absa also pre­dicts a sim­i­lar story. The bank ex­pects the SA econ­omy to have con­tracted 0,5% in fourth quar­ter 2008 and a fur­ther 0,8% in the first quar­ter of this year be­fore growth re­cov­ers slowly to take full year 2009 growth to just be­low 1%.

Rand Mer­chant Bank is an­other out­fit that’s scaled down its growth fore­cast sig­nif­i­cantly, from a pre­vi­ous 1,8% for this year to only 0,7%. But in­ter­est­ingly, RMB doesn’t fore­cast an out­right con­trac­tion in con­sumer spending for the year. It says: “It’s only ev­i­dence of the re­ces­sion-proof char­ac­ter­is­tics of spending on ser­vices (such as ed­u­ca­tion, med­i­cal and com­mu­ni­ca­tion), and to some ex­tent non-durable goods, that have stopped us short of fore­cast­ing an out­right con­trac­tion in real over­all con­sumer ex­pen­di­ture this year.”

But the ques­tion is whether the gloom isn’t over­done. One rea­son for won­der­ing is the fact that some SA re­tail­ers re­ported good Christ­mas sales. Mass­mart re­ported sales for the 26 weeks to 28 De­cem­ber 2008

{had climbed 13,2% above the same pe­riod in 2007, with in-store inflation at 9,9%. Shoprite re­ported a stel­lar 27,3% in­crease in sales for the six months to De­cem­ber 2008; but that in­cluded sales out­side SA. Shoprite’s re­tail sales in SA were up 24,5%. Mr Price also had a good fes­tive sea­son. Sales at Fos­chini and Tru­worths were a bit more muted. The fig­ures for all the re­tail­ers are dis­torted by the fact that new store space boosted turnover.

Looking ahead, a tech­ni­cal sta­tis­ti­cal rea­son might help to boost real re­tail spending. Inflation is set to fall dra­mat­i­cally, to be­low 6% by mid-year. As real re­tail sales are cal­cu­lated by sub­tract­ing inflation from ac­tual re­tail sales, the re­sult could be that real re­tail sales are boosted by a lower inflation num­ber. How­ever, Statis­tics SA doesn’t use the over­all inflation num­ber but the one ap­pli­ca­ble to re­tail sales, which – though down – is likely to be higher than the over­all num­ber.

A fur­ther glim­mer of hope comes from the Bureau for Mar­ket Re­search (BMR) fore­cast for re­tail sales in 2009. The BMR pre­dicted static re­tail sales – a re­cov­ery from the re­ces­sion­ary con­di­tions ex­pe­ri­enced by the sec­tor since 2007. The BMR an­tic­i­pates high re­tail inflation rates of around 10% for this year.

Eco­nomic con­sul­tant Roelof Botha has warned against “talk­ing the econ­omy into a re­ces­sion”. Even so, at most you can see just a glim­mer of hope.

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