Data show SA’s economic ‘stalemate’
YET more data released yesterday sketched a gloomy picture of the economy.
The Standard Bank purchasing managers’ index (PMI), for the entire economy showed that activity in SA’s private sector fell to a oneyear low last month, as the pressure of weak demand and high labour costs became more pronounced on businesses.
The PMI fell for the second time in a row to 48.9 last month from 49.2 in June. It was 50.1 in May. Levels below 50 indicate that business conditions have deteriorated.
Earlier this week, the Barclays manufacturing PMI showed stagnation in the sector last month as it stayed unchanged at 51.4, the same as in June.
The South African Chamber of Commerce and Industry’s (Sacci’s) business confidence index also released yesterday showed a slight rise last month to 87.9 points from a historic low of 84.6 in June.
But at 87.9 the index was still 12 points lower than the average of 100 for 2010 that served as a base year for it.
The private sector was trying its best to invest and generate growth and jobs, but power constraints and government policies were weighing on them, ETM Analytics economist Jana van Deventer said.
The PMI highlighted the “desperate need” for structural reforms, Ms van Deventer said. Reforms flagged by many including the International Monetary Fund, include improving the quality of education, developing skills and addressing power shortages.
Standard Bank said the PMI signalled a modest deterioration in operating conditions. About 400 purchasing executives in privatesector firms participated in the survey.
The contraction in output and new orders were the most marked in a year, and a reflection of weak domestic demand. Rising interest rates, higher electricity tariffs and municipal services were among factors negatively affecting demand and confidence levels.
Sacci said SA needed to “reconsider its economic direction” if confidence was to be improved, and described the country as being in an economic “stalemate”.
“Present circumstances provide an opportunity to change direction towards a more normative (and) acceptable policy approach serving longer-term economic growth imperatives,” Sacci said.
RESERVE Bank deputy governor and monetary policy committee member Daniel Mminele is cautiously upbeat about the recent oil price drop, although it is unclear what effect this will have on the inflation outlook.
The oil price has fallen from about $65/barrel at the beginning of May to about $50/barrel currently.
Lower oil prices ease pressure on inflation and may help delay further interest rate hikes.
“Certainly lower oil prices are a benefit for SA. If oil becomes cheaper, it does help as it is an important determinant of inflation dynamics,” Mr Mminele said yesterday.
“But one can’t extrapolate what the inflation outlook will be simply through oil prices alone, because other variables are also important.”
The benefits of lower oil prices were already evident, with the petrol price dropping by 51c/ l yesterday and another cut expected next month despite a weak rand.
The committee has identified the weak rand as a factor that could exacerbate inflation in coming months.
The Reserve Bank raised rates by 25 basis points last month on rising inflation concerns.
Mr Mminele said that while lower oil prices benefited SA, a significant importer of oil, the weakness in commodity prices counted against it.
Lower commodity prices, a slow recovery in global demand and waning Chinese economic growth and demand were preventing SA from reaping the benefits of factors such as a weak rand.
Stanlib chief economist Kevin Lings said that with many emerging economies including SA, very reliant on trade to boost the economy, a slowdown in world trade was putting downward pressure on company earnings. This slowdown had also made depreciating currencies less useful in stimulating export growth.
Instead, currency weakness was putting upward pressure on inflation in SA and other countries, he said. Inflation has been on a gradual rise, from 3.9% year on year in February to 4.7% year on year in June.
Although the Chinese economy is slowing, it remains a prominent global player. Data point to increasing use of the renminbi as a payment currency.
The number of SA’s renminbi payments has been rising over the past year, with 31.3% of direct payments value between SA and China/Hong Kong in June this year being in renminbi compared with 10.8% in June last year and only 4.6% in June 2013.