IT WILL GET WORSE BEFORE IT GETS BETTER

Uncertainty seems to be creeping back into the South African economy after a relatively calmer first half of the year.

Employers and unions representing gold miners are not finding common ground on an appropriate wage settlement, which has led unions to declare a dispute. Workers will go on strike if a solution is not found.

The effect of a gold-sector strike could be minimal, given that the sector accounts for a small share of gross domestic product (GDP). Despite this, SA cannot afford a strike, even one in the gold sector, as it would disrupt output and gold exports.

All sectors need to pull together and produce, given the pressure on some of the key contributing sectors to GDP, such as manufacturing.

Manufacturing entered recession in the second quarter of this year, which will compromise its contribution to growth.

Production in manufacturing was negatively affected by factors such as disruptions to power supply. Government estimates that load-shedding will shave one percentage point from GDP this year.

Economists do not expect stellar economic growth in the second quarter, with forecasts ranging between 0,5% and 1,3%. Economic growth slowed to 1,3% in the first quarter of 2015 from 4,1% in the fourth quarter of 2014.

Though economic growth is expected to falter in the second quarter, some good news is expected for the current account deficit after recent movements in the trade balance. After a series of deficits, the trade balance recorded a R5bn surplus in May and another of R5,8bn in June. This has led to expectations for the current account shortfall to narrow to around 3,5% of GDP from 4,8% in the first quarter.

The economy is also likely to take some strain in the second half of the year from slower growth in consumer spending, particularly because of over-indebtedness in an environment of rising borrowing costs and food prices.

The Reserve Bank raised rates by 25 basis points in July 2015 after having left them on hold for almost a year. While the effect of a 25 basis-points increase in rates on the pockets of consumers may be minimal, the cumulative rise is more worrying. Rates have gone up by a cumulative 100 basis points between January 2014 and last month.

First National Bank calculations estimate that the cumulative 100 basis points increase means consumers with a R700 000 home loan taken over a 20-year period will pay R450 more per month, which increases to R643 if the house cost R1m.

Higher food prices will hit consumers as well, which will in turn add pressure on the ability to spend. Though global food prices fell to six-year lows last month, the same is not the case for SA. A drought this year led to a lower maize crop, creating the need to import this commodity.

Grain SA estimates SA will have to import 766 000 t of maize this year. The moderation in food inflation over the past year is likely to reverse in coming months as food prices rise.

Headline inflation has already started an upward trend, which was one of the reasons the Reserve Bank hiked rates last month. The Bank expects inflation to be outside the 3%-6% target band in the first and second quarters of 2016 on factors such as higher electricity tariffs and as the effect of a weak rand on domestic prices becomes more pronounced.

With higher borrowing costs

It is surprising that the consequences were not investigated before the implementation of these new visa requirements