economic trends: key trends in the south african economy · gross domestic product • conditions...

ECONOMIC TRENDS:

Key trends in the South African economy

31 March 2014

Department of Research and Information

Gross Domestic Product

• Conditions in the South African economy remain

unsatisfactory.

• The rate of decline in consumer spending deteriorated to

5.8% in Q2 of 2009, its worst performance in almost 25

years.

• Factors contributing to poor consumer spending include

:

– Increased job losses

– Falling real disposable incomes

2

Overview 3

Gross domestic product 4

Gross domestic product

GDP growth at sectoral level

Sectoral composition of the South African economy

Real GDP growth by economic sub-sector

Domestic expenditure 6

Gross domestic expenditure

Final consumption expenditure by households

Final consumption expenditure by government

Gross fixed capital formation

Fixed investment by type of organisation

Inventories

Employment 8

Formal non-agricultural sector employment

Productivity and unit labour costs

Change in employment levels

Manufacturing sector 10

Manufacturing GDP and volume of production

Physical volume of production per sub-sector of manufacturing

Fixed investment and capacity utilisation

Utilisation of production capacity per sub-sector

Expectations regarding employment creation

Expectations regarding employment creation per sub-sector

Inflation and monetary aggregates 13

Consumer price inflation

Producer price inflation

Credit extension to the private sector

Interest rates and yields 14

Repo and prime overdraft rates

Inflation and interest rates

Long- and short-term yields

Capital markets 15

Johannesburg Securities Exchange performance

Shares traded on the JSE

Net portfolio purchases/sales by non-residents

Government finance 16

Budget balance

Government debt

Government savings

Exchange rates 17

The rand versus the US dollar and the euro

The rand versus other foreign currencies

Effective exchange rates of the rand

Balance of payments 18

Trade balance

Trade performance per sector

Current account of the balance of payments

Current account balance and financial flows

Total reserves and import cover

Composition of the export basket

Imports according to broad category

Key export destinations

Commodities 21

Commodity prices

Gold and platinum

Brent crude oil

Business cycle indicators 22

SARB business cycle indicators

BER business confidence indicators

BER/FNB confidence indicators

Miscellaneous indicators 23

Retail trade sales

New vehicles sales and exports

Building plans passed and buildings completed

Foreign direct investment

Liquidations of companies

Petrol price and crude oil prices

International indicators 25

World economic climate index

GDP growth in advanced economies

GDP growth in emerging economies

Equity market performance


Interest rates

Glossary of terms 27

Note: An in a specific graph indicates % change at constant prices, at a seasonally adjusted and annualised rate. *

Table of contents



unsatisfactory.



years.


:



3

And

3

Signs of improvement in global economic activity are becoming

increasingly discernible and are strengthening the foundations for a

sustained, albeit somewhat uneven normalisation. After slowing slightly to

an estimated 3% in 2013, world GDP growth is expected to accelerate

this year towards the 3.7% mark.

Amongst the advanced economies, the United States experienced a

significant deceleration in its growth momentum to 1.9% in 2013 as

household consumption expenditure, fixed investment activity and export

performance moderated, while governmental spending and investment

contracted. The Eurozone emerged from its longest recession in the 2nd

quarter of 2013, but the regional economy still reported a 0.4%

contraction for the year as a whole. Japan, in turn, managed to expand its

gross domestic product by 1.7% in real terms, up from 1.4% in 2012,

supported by elements of its “three-arrow” economic policy.

The emerging markets and developing economies as a group posted

slight lower growth in 2013. China’s economy expanded by 7.7%,

substantially slower than the double digit rates of expansion recorded

over the past decade. Latin America and the Caribbean, as well as the

Middle East and North Africa region also reported more moderate rates of

expansion in 2013. In contrast, Sub-Saharan Africa elevated its growth

rate to a robust 5.1%, supported by rising global demand for its exports,

higher foreign direct investment inflows and domestic consumption.

World trade improved last year, with export volumes rising by 2.6%,

compared to 1.9% in 2012. The rebound in industrial activity has not

been even around the globe and neither have inflation trends, which were

generally downward in advanced economies but the opposite in several

emerging markets mostly due to sharply weaker currencies.

Global economic prospects are expected to improve, with higher real

GDP growth forecast for all major regions over the next two years,

although at an uneven pace. The advanced economies are projected to

make notably stronger contributions to world growth in 2014 and 2015,

led by the United States and to a lesser extent by a gradually recovering

Eurozone economy, while Japan’s growth rate may hold relatively steady

in the current year. The modest acceleration of economic activity

anticipated in emerging markets and developing economies in 2014 and

2015 will be rather uneven. China is expected to continue experiencing a

moderation in growth as it faces challenges in re-balancing its economy

from an export-led and fixed investment driven growth model to a more

balanced domestic demand composition. Rates of economic expansion

are forecast to accelerate considerably in India and Mexico, but may

remain quite modest in Brazil and could deteriorate visibly in Russia. The

medium-term growth outlook for Sub-Saharan Africa is strong, backed by

robust infrastructure investment and household consumption.

South Africa’s economy recorded a substantial deceleration in growth to

1.9% in 2013. This was underpinned by a combination of external factors

such as relatively weak global demand for its export products and

unfavourable commodity prices, as well as a difficult economic climate on

the home front. Supply-side disruptions, mostly but not exclusively due to

prolonged labour-related production stoppages in segments of the mining

and manufacturing sectors, aggravated an operating environment

characterised by more subdued household spending.

Consumer expenditure was adversely impacted by continued high levels

of household indebtedness, stricter lending practises by the banking

sector, decelerating growth in real disposable incomes, as well as

weaker confidence levels. Growth in final consumption expenditure by

households moderated to 2.6% in 2013, from 3.5% in 2012.

At sector level, growth has been slowing in all services-related sectors,

with retail and wholesale trade, as well as the finance and business

services sector particularly hard hit by the weakening economic

environment. The output of key mining sectors such as platinum group

metals and gold rebounded in 2013, albeit from very low bases,

whereas the iron ore segment posted sharply lower growth and coal

mining volumes contracted. The pace of expansion in manufacturing

GDP fell to 0.8% in 2013, from 2.1% in 2012, mainly due to production

losses associated with industrial action on the supply side and subdued

conditions both locally and abroad on the demand side.

A gradual improvement in fixed investment activity was, however,

observed. Higher rates of growth in fixed capital formation were

reported by the private sector, whilst investment outlays by the public

sector increased at a fairly modest rate. Nonetheless, fixed investment

growth remained well below the rates observed prior to the global

economic crisis, and surplus production capacity in several economic

sectors should limit expansion needs in the short- to medium-term.

The current account of the balance of payments deteriorated

substantially, as the deficit-to-GDP ratio widened to 5.8% in 2013, from

5.2% in 2012. The largest trade deficit in relation to GDP (2.2%) in more

than four decades was the key contributor. Other than a sub-optimal

export performance, import demand was fairly robust due to the high

import-intensity of investment activity and a sizeable inflow of crude oil

and refined petroleum products to meet energy requirements, whilst a

sharply weakening currency contributed to a rising import bill.

Consumer inflation resumed an uptrend in 2013, breaching the target

band in the 3rd quarter before subsiding in subsequent months. It

averaged 5.7% last year, propelled largely by higher fuel and electricity

prices. Despite rising inflation, the MPC kept the repo rate unchanged

throughout 2013, but raised it by 50 basis points at the end of January

2014 due to a worse inflation outlook on the back of rand weakness.

Employment in the non-agricultural formal sectors of the economy

expanded by just over 39 000 in 2013, mainly due to the expansion of

general government’s workforce. The unemployment rate stood at

24.1% by the end of the year, implying that 4.8 million people find

themselves without work.

Business confidence has remained low considering a very challenging

environment and weak economic growth prospects. However,

manufacturers expect an improvement in export demand and general

business conditions during the course of 2014.

The pace of economic expansion is indeed expected to improve to

some extent in 2014, with further acceleration in subsequent years.

The manufacturing sector is likely to benefit from increased demand for

its export products as conditions improve in external markets and a

weaker currency enhances their price competitiveness to a degree, at

least temporarily. Segments of the mining sector are already facing a

very challenging year due to continued industrial action.

Household spending is likely to be curtailed by factors such as high

consumer indebtedness, rising inflation and higher interest rates.

Private sector fixed investment is anticipated to rise modestly in 2014,

accelerating from 2015 onward as production capacity comes under

pressure. Investment spending by public corporations will expand at

more moderate rates as a number of large infrastructure projects near

completion. However, investment outlays by general government could

increase at a faster pace to meet rising social infrastructure needs.

Overview



GDP growth at sectoral level


• Real GDP growth moderated considerably to 1.9% in 2013,

from 2.5% in 2012, as a combination of global and domestic

factors took their toll on the South African economy.

• Protracted industrial action in various sub-sectors of mining

and manufacturing continued to constrain the supply side of

the economy. Manufacturing activity was also curtailed by

continued weak demand from the Eurozone, a key market for

South Africa’s manufactured exports. Mining output

rebounded, albeit from a very low base, with the production of

gold and platinum group metals (PGMs) recovering from the

massive contractions reported in 2012. However, growth in

iron ore output decelerated sharply, while coal mining

reported a contraction in production volumes.

• A worsening domestic consumer environment weighed

heavily on service-related sectors, with a moderation in

growth across all tertiary sub-sectors. The construction sector

showed encouraging signs of recovery.


unsatisfactory.



years.


:



4

Notes:

(i) Figures in brackets in the above graph refer to the sector’s percentage share of total GDP at basic prices (constant 2005 prices) in 2013

-8

-6

-4

-2

0

2

4

6

8

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

han

ge (

q-o

-q) *

Gross Domestic Product (GDP)

Source: IDC, compiled from SARB data

-4 -3 -2 -1 0 1 2 3 4 5

Agriculture (2.4)

Mining (5.6)

Manufacturing (16.9)

Electricity (1.9)

Construction (3.4)

Trade (14)

Transport (10.1)

Finance (24.2)

Government (15.3)

Other services (6.1)

Total GDP

% Change

Real GDP growth by main economic sector

2013

2012

Source: IDC, compiled from Stats SA data

Total GDP (at market prices)

in 2013 = R3 385 billion

Gross domestic product (cont.)



unsatisfactory.



years.


:



5

-2

-1

0

1

2

3

4

5

6

7

8

9

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

han

ge (

q-o

-q)*

Real GDP growth in service-related sectors


Services sectors include:

Electricity, Construction, Trade,

Transport, Finance, Government

and Other services.

-30

-25

-20

-15

-10

-5

0

5

10

15

20

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

han

ge (

q-o

-q)*

Real GDP growth in the manufacturing sector


-30

-20

-10

0

10

20

30

40

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

han

ge (

q-o

-q)*

Real GDP growth in the mining sector


-20

-15

-10

-5

0

5

10

15

20

25

30

35

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

han

ge (

q-o

-q)*

Real GDP growth in the agricultural sector


Agriculture, forestry & fishing

2.4%

Mining & quarrying9.2%

Manufacturing11.6%

Electricity, gas & water

3.0%

Construction3.7%

Wholesale & retail trade, catering &

accommodation16.6%Transport, storage &

communication

8.9%

Finance, insurance, real estate & business

services21.5%

Community, social & personal services

6.0%

General government17.1%

Sectoral composition of the South African economy in 2013


Note: Sector share according to GDP at basic prices (current prices)

Domestic expenditure

Gross domestic expenditure


Final consumption expenditure by government

• Weaker domestic spending largely underpinned slower

overall economic activity in 2013, especially during the 2nd

half of the year. Continued strained financial positions of

consumers resulted in a marked deceleration of household

spending in 2012 as well as in 2013.

• Government spending recorded q-o-q seasonally adjusted

increases of below 2%, further depressing total domestic

spending.

• Fixed investment spending recorded encouraging increases

during the 2nd and 3rd quarters, although this momentum was

halted in the 4th quarter as the impact of industrial action in

the automotive and mining sectors was felt.

• The import penetration ratio declined markedly in Q4 of 2013

as the impact of automotive strikes and the weaker currency

stifled demand domestically.

• Household consumption continued to expand at a slow pace,

recording only 2% growth in Q4 of 2013, with spending levels

on non-durable goods basically unchanged on a q-o-q

seasonally adjusted basis.

• Spending on durable goods remained the largest driver of

growth in household expenditure in Q4, although the rate of

expansion slowed to 6.9% on a q-o-q seasonally adjusted

basis.

• Spending on semi-durable goods expanded at a sharply

weaker pace of 3.1% in Q4 of 2013 after recording rates of

growth in excess of 7% in the preceding three quarters.

• The ratio of household debt to disposable income reached

74.3% in Q4 of 2013, the lowest level since Q3 of 2006, as

consumers continued to repair their balance sheets. South

African households thus prioritised debt reduction over new

spending in recent quarters.

6

• The counter-cyclical role played by government spending

started to wane during 2013, as the limited fiscal space

constrained its growth.

• Although the rate of increase in government consumption

expenditure slowed in 2013, as a percentage of GDP it

continued on an uptrend to 22.8%, the highest ratio to date.

• The public sector wage bill remains a concern, with the

Minister of Finance having indicated that attempts will be

made to limit its further expansion to 3.8% in the 2014/15

fiscal year. Doubts have, however, been raised over the

realism of such a budgetary projection.

• Considering the limited fiscal space, any increases in public

sector wages will necessitate reduced spending in other

areas, with the associated impacts.

22

24

26

28

30

32

34

-15

-10

-5

0

5

10

15

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Imp

ort

s:

% o

f G

DE

% C

han

ge (

q-o

-q) *

Gross Domestic Expenditure (GDE)

GDE (% change)

Imports as % of GDE


50

54

58

62

66

70

74

78

82

86

90

-8

-6

-4

-2

0

2

4

6

8

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Deb

t-to

-dis

po

sab

le in

co

me (

%)

% C

han

ge (

q-o

-q) *


Consumer spending (Lhs)

Household debt as % of disposableincome (Rhs)


17

18

19

20

21

22

23

-10

-5

0

5

10

15

20

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% S

hare

of

GD

P

% C

han

ge (

q-o

-q) *

Final consumption expenditure by government (FCEG)

Government spending (Lhs)

FCEG as % of GDP (Rhs)


Domestic expenditure (cont.)


Fixed investment by type of organisation

Inventories

7

• Fixed investment reported a marked slowing during the 4th

quarter of 2013, bring to an end the upward momentum that

had been build up since the start of 2012. Nevertheless, a

4.7% rate of increase was still recorded in 2013.

• Although the ratio of fixed investment to GDP remained fairly

stable over the past four years at an average of around 19%,

the equivalent ratio for gross savings has been declining.

Consequently, the economy has become more reliant on

foreign capital to fund investment activity domestically.

• The strongest rates of increase in fixed investment recorded

in 2013 pertained to the manufacturing (11.4%), construction

(7.2%) and the electricity, gas and water (5.1%) sectors.

• Investment in the mining sector slowed to 1.7% in 2013 as

continued industrial action in conjunction with slowing global

demand for commodities derailed investment plans.

• Fixed investment by the private sector accelerated to 5.5% in

2013, from 3.9% in 2012.

• This contrasted with the deceleration in investment spending

by general government (3.5% in 2013, compared to 6.2% in

2012) as well as by public corporations (3.1% in 2013 vis-à-

vis 4.9% in the previous year).

• Slower investment spending by general government was due

to a contraction in economic services related investment,

although expenditure on social infrastructure increased

marginally after having contracted in 2012.

• With public sector infrastructure spending having reached its

peak, future growth in this area is expected to be limited,

while continued spare production capacity in the private

sector will also limit its investment activity in the short-term.

• The adverse impact of protracted industrial action in the

automotive industry, coupled with continued tensions in the

mining sector, were reflected in inventory reductions during

the 4th quarter of 2013.

• The abrupt decline in inventories during this quarter resulted

in the inventory change for 2013 as a whole being only

marginally positive.

• The sectors that reported increased inventories in 2013 were

mining as well as wholesale and retail trade, whereas the

manufacturing and agriculture sectors recorded lower

inventory levels.

• The ratio of industrial and commercial inventories to GDP

remained around the 13% level, still significantly below the

17% to 18% levels witnessed prior to the 2009 recession

year.

8

10

12

14

16

18

20

22

24

26

28

-16

-12

-8

-4

0

4

8

12

16

20

24

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% S

hare

of

GD

P

% C

han

ge (

q-o

-q) *

Gross fixed capital formation (GFCF)

GFCF (% change)

GFCF as % of GDP

Gross saving as % of GDP


-40

-30

-20

-10

0

10

20

30

40

50

60

Q1 Q2 Q32007

Q4|

Q1 Q2 Q32008

Q4|

Q1 Q2 Q32009

Q4|

Q1 Q2 Q32010

Q4|

Q1 Q2 Q32011

Q4|

Q1 Q2 Q32012

Q4|

Q1 Q2 Q32013

Q4|

% C

han

ge (

q-o

-q) *


Government Public corporations

Private sector Total investment


110.1%72.9% 74.7%

-80

-60

-40

-20

0

20

40

60

80

100

10

11

12

13

14

15

16

17

18

19

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Ran

d B

illi

on

% o

f G

DP

Change in inventory levels

Change in inventories (RHS)

Industrial & commercialinventories as % of GDP


Employment

Formal non-agricultural sector employment

Productivity and unit labour costs

Change in employment levels

8

• Continued sluggish growth in the economy is limiting the

expansion of employment levels.

• According to the Quarterly Employment Survey (QES), non-

agricultural formal sector employment expanded by just over

39 000 in 2013. This was largely due to the expansion of

general government’s workforce by 39 041 to 1 977 712

during the year (refer to the chart overleaf).

• Employment levels in the private sector, in contrast, remained

largely unchanged. However, notable changes at sector level

included gold mining, where around 17 000 jobs were lost,

and the wholesale and retail trade sector, where overall

employment increased by 22 000.

• Total employment in the manufacturing sector, in turn,

appears to have largely stabilised around the 1.45 million

level, although the sector remains under pressure.

• Labour productivity in the non-agricultural sectors of the

economy recorded welcomed improvements in the 2nd and

3rd quarters of 2013. However, the respective index rose by

only 13% since Q1 of 2007.

• Furthermore, part of the increase was associated with

stagnant or very weak expansions in overall employment

accompanying modestly higher levels of economic activity.

• Unit labour costs increased at a fast rate over the period

2007 to 2010, averaging 9.3% per year in nominal terms or

2.5% annually in real terms. Since 2011, however, unit labour

costs increased by 0.6% per year, on average.

• Lower rates of increase in unit labour costs will assist in

limiting inflationary pressures and, if sustained, in improving

domestic competitiveness. In conjunction with a weaker

exchange rate, such a trend could support the penetration of

South African export products in global markets.

• South Africa is experiencing a high level of structural

unemployment, with the unemployment rate standing at

24.1% in Q4 of 2013, compared to 24.5% a year earlier.

Some 4.83 million people find themselves without a job,

whilst the number of discouraged work-seekers stood at 2.2

million by the end of 2013. Furthermore, according to the

expanded definition, the unemployment rate measured 34%

in Q4 of 2013, implying that 7.8 million people are

unemployed.

• At the provincial level, the Free State had the highest

unemployment rate at 33% (narrow definition), followed by

the Eastern Cape at 27.8%. Limpopo had the lowest

unemployment rate at 16.9% in Q4 of 2013.

• Subdued growth prospects are not conducive for meaningful

change in the labour absorption capacity of the economy, as

key labour-intensive sectors are likely to remain under

pressure for some time.

0

2

4

6

8

10

12

14

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3

% C

han

ge (

y-o

-y)

Labour productivity and unit labour costs

Labour productivity

Nominal unit labour costs


-200

-150

-100

-50

0

50

100

150

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Ch

an

ge i

n n

um

ber

of

job

s (

'000)

Employment in the formal non-agricultural sector


Additional jobs relative to preceding quarter

18

19

20

21

22

23

24

25

26

27

28

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Perc

en

tag

e

Unemployment rate


Employment (cont.)

9


7.7%Mining5.5%

Manufacturing12.4%

Electricity, gas & water

0.7%Construction

4.5%

Trade, catering & accommodation

18.8%

Transport, storage &

communication4.1%

Finance & business services

20.1%

Community, social &

personal services

4.7%

Government21.5%

Sectoral composition of employment in South Africa in 2013


Note: Data is for the formal sector as per data from the Quarterly Employment Statistics (QES). However, agricultural employment includes the informal sector as per data from the Quarterly Labour Force Survey.

-10 -5 0 5 10 15 20 25

Gold & uranium ore mining (1.3)Civil engineering (1.7)

Furniture (0.4)Transport & storage (3.2)

Agriculture, forestry & fishing (7.7)Motor vehicles & parts (0.9)

Community services (1.5)Plastic products (0.4)

Printing & publishing (0.5)Basic iron & steel (0.5)

Communication (0.9)Building construction (2.8)

Other services (0.3)Wearing apparel (0.5)

Wood & wood products (0.4)Other industries (0.5)

Business services (17.1)Basic chemicals (0.2)

Non-metallic minerals (0.5)Basic non-ferrous metals (0.2)

Other mining (3.1)Textiles (0.3)

Prof.& scientific equip. (0.1)Water supply (0.2)

Leather & leather products (0)Glass & glass products (0.1)

Electricity, gas & steam (0.5)Rubber products (0.1)

Electrical machinery (0.4)Other transport equipment (0.2)

Paper & paper products (0.3)TV, radio & comm. equip. (0.1)

Petroleum products (0.3)Beverages (0.4)

Coal mining (0.9)Other chemicals (0.5)

Footwear (0.1)Fabricated metal products (1.1)

Food (1.9)Machinery & equipment (1.3)

Finance & insurance (2.9)Catering & accommodation services (2.2)

Medical & other health services (2.9)Wholesale & retail trade (16.6)

Government (21.5)

Change in number ('000)

Change in employment : Q4 2013 vs Q4 2012


39

Note: Data is for the formal sector as per data from the Quarterly Employment Statistics (QES). However, agricultural employment includes the informal sector as per data from the Quarterly Labour Force Survey.

-17

Note: Figures in brackets in the above graph refer to the sector’s percentage share of total employment in 2013

Manufacturing sector


Physical volume of production per sub-sector of manufacturing



unsatisfactory.



years.


:



• Manufacturing value added expanded marginally in 2013 (0.8%,

from 2.1% in 2012) as relatively weak demand conditions

globally and domestically, aggravated by adverse supply-side

factors, curtailed production in various sub-sectors. This was

the worst performance since the 2009 recession, when

manufacturing value added contracted by 10.1%.

• Protracted industrial action in the automotive industry during Q3

of 2013 resulted in a sharp contraction in its output. For the

year as a whole, production volumes increased marginally

(0.3%) in the case of motor vehicles, while the parts and

accessories segment reported a 5.4% contraction. The output of

the broader basic metals, fabricated metals and machinery sub-

sector expanded by 2% in 2013, and that of the chemicals,

rubber and plastics sub-sector by 1.2%.

• Despite having recovered since 2010, by January 2014

manufacturing output levels were still 21% below the pre-crisis

peak recorded in 2008.

10

Note: Figures in brackets refer to the sub-sector’s percentage share of total manufacturing production according to the 2010 large sample survey.

-25

-20

-15

-10

-5

0

5

10

15

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)


Volume of production (monthly)

Manufacturing GDP (quarterly)


-10

-8

-6

-4

-2

0

2

4

6

8

10

TotalManufac-

turing

Food &beverages

(22.1%)

Textiles &clothing(3.5%)

Wood &paper(9.3%)

Chemicals(25.1%)

Non-metallicmineral

products(4.9%)

Metals &machinery

(20.3%)

Electricalmachinery

(2.4%)

Radioand TV(1.3%)

Transportequip.(7.9%)

Furniture& other

industries(3.2%)

% C

han

ge (

y-o

-y)

Volume of production by sub-sector

2012 2013


Manufacturing sector (cont.)


Utilisation of production capacity per sub-sector of manufacturing



unsatisfactory.



years.


:



• Fixed investment in the manufacturing sector expanded by

11.4% in 2013. This was the fastest annual rate of growth

since the 2009 recession, when a 22.1% contraction in

investment spending was recorded.

• However, considering the subdued levels of production

activity and significant spare capacity, it can be assumed that

much of this investment was of a replacement and/or

technology upgrading nature, and not necessarily for the

expansion of productive capacity.

• Manufacturing sub-sectors that reported strong increases in

fixed investment outlays included beverages, clothing, wood

products, basic metals and plastics.

• Utilisation of production capacity in manufacturing remains at

relatively low levels, therefore impacting on investment

decisions in various sub-sectors .

11

Note: Figures in brackets refer to the sub-sector’s percentage utilisation of production capacity in the fourth quarter of 2013.

70

72

74

76

78

80

82

84

86

88

90

92

-60

-50

-40

-30

-20

-10

0

10

20

30

40

50

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Cap

acit

y u

tili

sati

on

(%

)

% C

han

ge (

q-o

-q) *


Capacity utilisation (RHS)

Fixed investment (% change)

Source: IDC, compiled from Stats SA and SARB data

-10 -8 -6 -4 -2 0 2 4 6 8 10

Glass products (86.8)

Rubber products (85.3)

Clothing (81.7)

Printing & publishing (81.5)

Fabricated metal products (78.1)

Radio, TV & communication (86.1)

Furniture (91.9)

Professional equipment (87.8)

Plastic products (86.6)

Food (83.5)

Machinery & equipment (84.5)

Footwear (88.6)

Petroleum products (84.6)

Wood products (84.6)

Other chemicals (84)

Non-ferrous metals (81.4)

Paper & paper products (88.7)

Other transport equipment (81.7)

Iron & steel (77.6)

Motor vehicles, parts & accessories (87)

Electrical machinery (82.9)

Textiles (74.3)

Other manufacturing (85.7)

Basic chemicals (88.3)

Beverages (86.3)

Non-metallic mineral products (81.2)

Leather (75.5)

Total Manufacturing (84)

Absolute change

Absolute change in sub-sectoral utilisation of production capacity (Q4 of 2013 vs Q4 of 2012)


Manufacturing sector (cont.)

Expectations regarding employment creation

Expectations regarding employment creation per sub-sector of manufacturing



unsatisfactory.



years.


:



• Employment losses are still being recorded in the

manufacturing sector (approximately 2 000 jobs were lost in

the sector in the year to December 2013), albeit at a more

moderate pace than during the 2008/09 economic downturn.

• The manufacturing sector has been unable to create jobs in

recent years, with the overall employment level by Q1 of 2014

still substantially below the Q4 2008 level.

• Key sectors for employment such as food, transport

equipment, as well as machinery have indicated that

continued job shedding could be expected in the short-term.

• Since business conditions will still be challenging in 2014,

employment prospects for the manufacturing sector are likely

to remain unsatisfactory, with more job losses anticipated

during Q2 of 2014.

12

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

40

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Q1 Q22014

Net

bala

nce

Employment trend - number of factory workers

Source: IDC, compiled from BER data

Expected

-100 -80 -60 -40 -20 0 20 40 60 80 100

Transport equipment

Electrical machinery

Printing & publishing

Basic metals

Plastic

Machinery

Paper

Furniture

Food

Fabricated metals

Beverages

Textiles

Non-metallic minerals

Chemicals

Clothing

Wood

Manufacturing total

Employment creation by sub-sector

Q2 2014

Q2 2013

Source: IDC, compiled from BER data Pessimistic OptimisticNeutral

Inflation and monetary aggregates



Credit extension to the private sector

13

• Consumer price inflation resumed an upward trend in 2013,

although a somewhat surprising deceleration was recorded

towards year-end as food inflation moderated. However, food

price inflation accelerated in the first two months of 2014. A

sharply weaker currency has put upward pressure on

domestic petrol prices.

• Core inflation, which excludes food, petrol, electricity and

food, stabilised at around 5.3% during the second half of

2013, indicating that underlying inflationary pressures

remained fairly muted in the absence of demand-pull factors.

• The impact of the rand depreciation has started filtering

through to consumer prices, which rose by 5.9% y-o-y in

February 2014, from a recent low of 5.3% in November 2013.

The inflation outlook has deteriorated substantially, with the

Reserve Bank’s forecasts for headline inflation in 2014 and

2015 standing at 6.3% and 5.8%, respectively.

• Inflation at the factory gate averaged 6% in 2013, a

deceleration from the 7% recorded in 2012. However,

producer price inflation has trended upward in recent months,

measuring 7.7% in February 2014.

• Electricity and water prices increased by 17.8% in 2013,

compared to 22.5% in 2012. Some intermediate manufactured

products also experienced sharp price increases at the

producer level in 2013. For example, price increases for textile

and leather goods averaged 18.8%, rubber products 18.4%

and basic iron and steel 8.6%.

• Substantial upward pressure in the prices of final

manufactures like automotive parts and accessories, as well

as machinery and equipment emerged in the 2nd half of 2013.

• Facing rather challenging demand conditions, businesses are,

however, finding it difficult to pass higher costs on to

consumers, but pressure in this regard is building up.

• Demand for new credit by the private sector has been slowing

in recent months, a trend that could be exacerbated by the

recent hike in, and short-term prospects for interest rates.

• For households, growth in overall credit extension decelerated

from 10.4% in December 2012 to 5.5% by December 2013.

This was partly due to stricter lending practises by the banking

sector, as well as debt-ridden consumers not being willing to

take on additional debt. The downward growth trend was

particularly pronounced in the case of demand for unsecured

borrowing by households during the course of 2013.

• Demand for mortgage finance also remained subdued, as

reflected by an average growth rate of only 2.7% for 2013,

compared to 24.3% in 2008.

• The downward trend in credit extended to the corporate sector

has been reflecting the challenging economic environment

and growth outlook, which are affecting investment decisions.

0

2

4

6

8

10

12

14

16

18

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)


CPI : Targeted inflation

Goods

Services


Targeted inflation measure: CPIX until Dec '08, Headline inflation since Jan '09

-10

-5

0

5

10

15

20

25

30

35

40

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)

Private sector credit extension

Households

Corporate sector


-10

-5

0

5

10

15

20

25

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)



Interest rates and yields

Repo and prime overdraft rates

Inflation and interest rates


14

• The repo rate remained unchanged at a four-decade low of

5% through 2013, despite upside risks to the inflation outlook.

The Monetary Policy Committee (MPC) was reluctant to raise

interest rates due to the weak economic growth momentum

and the absence of demand-pull pressures on the inflation

front.

• However, the sharp depreciation of the rand from the latter

part of 2013 and a substantial deterioration in the inflation

outlook prompted the MPC decision, at its January 2014

meeting, to raise the repo rate by 50 basis points.

• This was the first rate hike since June 2008 and may have

signaled the start of the monetary policy tightening cycle.

However, barring further excessive currency depreciation over

a prolonged period, the repo rate is not expected to be raised

aggressively. It should be noted that the South African

Reserve Bank (SARB) has lowered its GDP growth forecasts

for 2014 and 2015 to 2.6% and 3.1%, respectively.

• Subdued rates of economic expansion and a fragile growth

outlook, along with MPC expectations that consumer price

inflation would remain within the target band over its forecast

period (albeit uncomfortably close to the upper level),

underpinned the monetary policy stance of keeping interest

rates at record low levels throughout 2013.

• Consequently, in real terms the real repo rate was marginally

negative throughout the year, reflecting the extent of monetary

policy accommodation.

• Despite the 50 basis points hike in January 2014 to anchor

inflation expectations, the real repo rate remains marginally in

negative territory. However, the situation may be reversed

should additional rate hikes ensue during the course of the

year, as is widely anticipated.

• A fragile domestic economic performance, subdued growth

prospects and sizeable deficits on the current account and

fiscal balance resulting in the escalation of risk, placing

upward pressure on long-term bond yields. The trend was

exacerbated by reduced appetite of non-residents for South

African bonds.

• Long-term government bond yields increased from 7% in April

2013 (the lowest rate since 1970) to 8.3% by December, with

a higher trajectory likely in 2014.

• Since government is already facing high and rising debt

levels, higher bond yields will aggravate the situation as the

cost of borrowing rises.

• Towards the latter part of 2013, the possibility of an interest

rate increase was partly being priced in. However, January’s

repo rate hike had not been expected by the market.

0

2

4

6

8

10

12

14

16

18

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Perc

en

tag

e (

mo

nth

-en

d)

Repo and Prime overdraft rates

Repo rate

Prime overdraft rate


-4

-2

0

2

4

6

8

10

12

14

16

-4

-2

0

2

4

6

8

10

12

14

16

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Rep

o r

ate

s :

Perc

en

tag

e

CP

I :

% C

han

ge (

y-o

-y)

Inflation developments and the interest rate environment

Nominal Repo rate (Rhs)

Real Repo rate (Rhs)

CPI: Targeted inflation measure

Source: IDC, compiled from Stats SA and SARB data

4

5

6

7

8

9

10

11

12

13

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Perc

en

tag

e


Yield on long-term government bonds

3-Month bankers' acceptance

91-Day Treasury bills


Capital markets

Johannesburg Securities Exchange (JSE) performance


Net portfolio purchases/sales by non-residents

15

• The JSE All Share Index (ALSi) continued on a strong upward

trend during 2013, recording new highs on a continuous

basis. By 31 December, the ALSi had risen by 17.8% on a

year-on-year basis. Minimal gains have been posted thus far

in 2014, amounting to 2.7% over the 1st quarter.

• Resources and industrials reported solid gains over the

course of 2013, amounting to 42% and 32%, respectively,

despite ongoing production disruptions in certain segments of

the mining sector. Financials, in turn, recorded relatively

modest gains at approximately 15%.

• Equity markets around the globe, particularly in advanced

economies, posted robust performances, stimulated by

quantitative easing and other forms of monetary policy

stimulus. Investor optimism accompanying improved growth

prospects, especially for advanced economies, further

supported equity market performances.

• The robust performance of the domestic equities market was

also reflected by the 16% increase in the overall value of shares

traded on the JSE in 2013 to almost R4 trillion, from R3.4 trillion

in 2012. Nevertheless, trading volumes were relatively subdued

as the number of shares traded increased only marginally, that

is by 3.3% year-on-year to 63.9 billion.

• Although activity on the JSE remained fairly resilient, foreign

investors exhibited substantially lower appetite for South African

equities from the latter part of 2013 and at the start of 2014

(refer to the chart below).

• The build-up of unfavourable sentiment towards emerging

markets in general, largely prompted by the anticipated tapering

of quantitative easing, contributed to this trend. However,

domestic factors such as the sizeable deficits on the current

account of the balance payments and the government balance,

and very modest economic growth prospects also played a role.

• South Africa, like many other emerging markets, experienced

substantially lower appetite by non-residents for local equities

and bonds in 2013 and thus far in 2014. Global and domestic

factors, as highlighted above, underpinned this adverse trend.

• Foreigners were net buyers of local bonds and equities to the

tune of only R1.2 billion in 2013, compared to R85.2 billion in

2012. In the final quarter of 2013, non-residents were net

sellers of bonds and equities, with the total value amounting to

R16.1 billion and R27.2 billion, respectively. The opening

months of 2014 witnessed a significant sell-off of local bonds

and to a lessor degree equities.

• The gradual monetary policy normalisation in the USA, which

involves the progressive reduction of liquidity injections on a

monthly basis and eventually upward interest rate

adjustments, among other global developments, are likely to

impact on emerging markets through portfolio adjustments.

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

50 000

55 000

60 000

65 000

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Ind

ex

JSE performance

All Share Index

Industrials

Resources

Source: IDC, compiled from Bloomberg data

Monthly averages

-80

-60

-40

-20

0

20

40

60

80

100

-80

-60

-40

-20

0

20

40

60

80

100

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

R b

illi

on

R b

illi

on

Net portfolio purchases /sales by non-residents

Net purchases of Shares

Net purchases of Bonds

Source: IDC, compiled from SARB and JSE data

Cumulative totals per annum

0

10

20

30

40

50

60

0

50

100

150

200

250

300

350

400

450

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Vo

lati

lity

in

de

x

Va

lue

of

sh

are

s:

R B

illio

n


Value of shares traded (Lhs)

SA volatility index (SAVI) (Rhs)

Source: IDC, compiled from SARB and JSE data

Government finance

Budget balance

Government debt

Government savings

16

• Subdued levels of economic activity and spending weighed

on revenue collections by government in fiscal year 2014.

This is reflected by estimates for VAT collections which are

approximately R10 billion lower than in the 2013 Budget.

• Nonetheless, the revised estimate for total revenue over fiscal

year 2014 exceeds slightly the original budgeted amount. At

25.2%, however, the revenue-to-GDP ratio is below the

26.6% level recorded in 2008.

• Government’s commitment to bring expenditure under control

was reflected in the 8.4% increase in total expenditure in

2013, compared to the 11.5% rise in 2012. A concerning

factor is the substantial portion (34.5%) of overall government

spending on employee remuneration.

• A small improvement in the main budget deficit to 5% of GDP

was reported for calendar year 2013, compared to the 5.3%

deficit of the previous year.

• Public finances underwent a gradual deterioration in the years

following the global financial and economic crises in 2008/09,

as a counter-cyclical fiscal policy stance took its toll and the

fiscal space became increasingly limited.

• A widening budget shortfall and, accordingly, an increased

reliance on borrowings resulted in a steep rise in government

debt.

• The gross loan debt of government has risen from R455

billion (or 34.9% of GDP) in fiscal year 2004 to an estimated

R1 586.4 billion by FY 2014, equivalent to 45.8% of GDP.

• Growth in debt servicing costs has also risen rapidly as

borrowing requirements escalated, accounting for an

estimated 9.4% of overall expenditure in FY 2014.

• An anticipated improvement in state finances should,

however, alleviate some of the pressures in coming years.

• The contribution by government to the national savings pool

continued to deteriorate in the light of increased pressures on

the fiscus.

• After having been able to make a positive contribution to

national savings during the period 2006 to 2008, the situation

was subsequently reversed and, by calendar 2013,

dissavings by government amounted to R136.6 billion,

equivalent to 4% of GDP .

• Considering South Africa’s substantial funding requirements

for investment purposes vis-à-vis a very limited domestic

savings pool, the country is increasingly relying on foreign

capital to finance the gap.

• Continued dissaving by government may also result in the

potential crowding out of much needed private sector fixed

investment.

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% o

f G

DP

Budget balance as a % of GDP


0

5

10

15

20

25

30

35

40

45

50

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% o

f G

DP

Government's gross loan debt as a % of GDP


-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% o

f G

DP

Government savings as a % of GDP


Exchange rates

The rand versus the US dollar and the euro

The rand versus other foreign currencies

Effective exchange rates of the rand

17

• The rand was one of the worst performers among major

emerging market currencies in 2013, depreciating by almost

24% against the US dollar.

• Developments such as the anticipated tapering of quantitative

easing in the USA, changing perceptions of risk in emerging

markets, major portfolio adjustments globally, weakening

economic fundamentals locally (e.g. large current account and

budget deficits) and continued labour unrest, among other

factors, affected foreign investor sentiment toward domestic

assets, altered capital flows and by implication weakened the

rand during the course of 2013 and early in 2014.

• Almost immediately after the largely unexpected 50 basis points

hike in the repo rate by the MPC on 29 January, which came

soon after sizeable rate adjustments were made by Turkey’s

monetary authorities, the rand tumbled to its weakest level in

over 5 years. The currency has since recovered some ground,

but remains highly vulnerable to local and global developments.

• The following illustrate the extent of appreciation (+) or

depreciation (-) of the rand against a select number of

currencies over the period March 2013 to March 2014*:

* All of the above percentage changes are based on monthly average exchange

rates.

• The depreciation of the rand against a basket of currencies*

since early 2012 is illustrated in the adjoining graph. The

nominal effective exchange rate fell by almost 16% in 2013,

while the drop in real terms amounted to around 11%.

• Although a weaker rand may be expected to improve the

relative price competitiveness of exports in world markets and

provide some protection vis-à-vis imports in local markets,

various factors are at play. These include subdued demand in

key global markets (e.g. Eurozone) and the performance of

other currencies in competing export-oriented economies,

which may limit the export growth potential. Furthermore, the

rand depreciation exerts upward pressure on domestic prices,

gradually eroding the price competitiveness provided by

currency weakness, while adversely affecting the trade

balance by raising the rand value of essential imports.

* Euro (34.8% weight), US dollar (14.9%), Chinese renminbi (12.5%), British pound (10.7%) and Japanese yen (10.1%), among others

4

6

8

10

12

14

16

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Ran

d p

er

US

D o

r E

uro

Exchange rate movements of the rand

Rand per Euro

Rand per US dollar

Source: IDC, compiled from SARB and Bloomberg data

2

4

6

8

10

12

14

16

18

20

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Ran

d p

er

GB

P o

r Y

en

Exchange rate movements of the rand

Rand per British pound (GBP)

Rand per Japanese Yen (X 100)


40

50

60

70

80

90

100

110

120

130

140

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Ind

ex:

2000 =

100

Real and nominal effective exchange rates

Nominal effective exchange rate

Real effective exchange rate


Appreciation

Depreciation

– Australian dollar : -2.9%

– Brazilian real : 0.2%

– British pound : -29.2%

– Chinese renminbi : -18.1%

– Euro : -25.0%

– Indian rupee : -4.7%

– Japanese yen : -8.4%

– US dollar : -17.3%

Balance of payments

Trade balance

Trade performance per sector



unsatisfactory.



years.


:



• South Africa experienced a substantial deterioration of its trade

balance in 2013 as relatively weak global demand and labour

related production stoppages in key segments of its mining and

manufacturing sectors took a toll on exports.

• Moreover, the US dollar earnings associated with mining

exports were negatively affected by lower commodity prices

with respect to gold, platinum, coal and, among others, copper,

although a sharply weaker rand compensated to a large extent.

Iron ore exports, mainly destined for China, increased by 20%

in nominal terms in 2013 to R74 billion, compared to R61.5

billion in 2012. Manufactured exports were adversely impacted

by prolonged strike action in the automotive and components

sub-sector, resulting in a substantial widening of the trade

deficit for manufactured goods.

• The trade deficit for 2013 as a whole stood at R73.6 billion or

2.2% of GDP - the worst ratio since the 2.9% recorded in 1970.

18

-150

-100

-50

0

50

100

150

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

R b

illi

on

Movements in the trade balance


Seasonally adjusted and annualised data

-4 000 0 4 000 8 000 12 000 16 000 20 000

Other manufacturing

Furniture

Other transport equipment

Motor vehicles & parts

Professional equipment

Radio & TV

Electrical machinery

Machinery & equipment

Fabricated metals

Non-ferrous metals

Iron and steel

Non-metallic minerals

Glass

Plastic products

Rubber products

Other chemicals

Industrial chemicals

Petroleum

Printing and publishing

Paper products

Wood products

Footwear

Leather

Clothing

Textiles

Beverages

Processed food

Mining

Agriculture

R Million

Change in export and import values : 2013 vs 2012

Imports

Exports

Source: IDC, compiled from SARS data

R28.2 bn

Balance of payments (cont.)



Total reserves and import cover

19

• The large trade imbalance was the key contributor to the

deteriorating deficit on the current account of the balance of

payments in 2013, which widened to 5.8% of GDP, from 5.2%

in 2012.

• In turn, the net services, income and transfer payments

components of the balance of payments jointly recorded a

very modest improvement of about R1.4 billion compared to

2012, as their combined deficit declined to R123.6 billion.

Although income payments (dividends and interest) increased

strongly, the net income position improved as dividend

receipts rose by 51% to R39 billion in 2013. Moreover, income

receipts doubled over the past two years, reflecting an

improved global economic performance that benefitted South

African companies and/or shareholding abroad.

• Current transfers by central government (mainly SACU

payments) increased to R41.5 billion in 2013 (R35.7 billion in

2012), which was more than double the 2011 figure.

• Foreign portfolio capital movements fell sharply from an inflow

of R48.8 billion recorded in the 3rd quarter of 2013 to an

outflow of R30.8 billion in the final quarter of the year, largely

in reaction to the US Federal Reserve’s announcement of its

tapering plans for the quantitative easing stimulus.

• Portfolio inflows totaled a mere R14.3 billion for 2013 as a

whole, dramatically lower than the R95 billion recorded in

2012.

• In contrast, foreign direct investment (FDI) flows into South

Africa more than doubled in 2013 to R79.1 billion (R37.4

billion in 2012), with the largest FDI inflows (R47.4 billion)

witnessed during the 3rd quarter of the year.

• Overall, foreign capital inflows (i.e. portfolio investment, direct

investment and other investment) still exceeded the current

account deficit, but the margin was significantly reduced to

R4.7 billion in 2013, compared to R32.7 billion in 2011.

• South Africa’s gross gold and international reserves increased

by R89.2 billion to R520.2 billion in 2013. In dollar terms,

however, their overall value fell modestly from USD50.7 billion

in 2012 to USD49.6 billion last year, mostly due to significant

rand weakness.

• Whereas gold reserves dropped by about 11% to R50.6

billion, mainly due to the sharp fall in the gold price during

2013, foreign exchange reserves rose by close to 26% to

R469.6 billion by the end of 2013.

• Despite relatively strong growth in import demand, the import

cover (i.e. the ratio of international reserves to overall imports

of goods and services) improved marginally to an average of

19.4 weeks in 2013, compared to 19.1 weeks in 2012 and a

mere 14.6 weeks back in 2008.

Note: Seasonally adjusted and annualised data

-250

-200

-150

-100

-50

0

50

100

150

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

R B

illi

on


and its respective components

Transfers Income

Services Trade

Overall current account


-80

-60

-40

-20

0

20

40

60

80

100

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

R B

illi

on


Foreign capital flows

Current account balance


0

3

6

9

12

15

18

21

24

27

0

100

200

300

400

500

600

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Nu

mb

er

of

weeks

Reserv

es:

R B

illi

on

Total reserves and the import cover

Total reserves (gold & foreign exchange): (LHS)

Import cover (weeks)


Balance of payments (cont.)


Imports according to broad category

Key export destinations

20

• Manufactured goods saw their share of the overall

merchandise export basket increase slightly in 2013 as

external demand improved in line with the global economic

recovery. Exports of manufactured goods increased by

13.4% in nominal terms in 2013. However, these remain

highly concentrated, as a few sectors such as motor vehicles,

parts and accessories, basic iron and steel, basic chemicals,

and non-electrical machinery and equipment accounted for

just over 50% of all manufactured exports in 2013.

• Mining exports rose by 9.1% in 2013, with the rebound in

platinum exports amounting to 25% for a total of R81.3 billion

(-18.5% in 2012). Iron ore exports expanded by 20% on the

back of continued strong demand from China.

• In turn, gold exports tumbled by 10.5% to R63.6 billion as the

gold price and export volumes dropped sharply during the

course of the year.

• Demand for imported goods remained fairly robust in 2013

despite a moderation in overall GDP growth.

• The public sector’s infrastructure build programme largely

underpinned the strong demand for imported capital goods,

considering the high import intensity of South African

investment activity. Imports of electrical machinery and

equipment, for instance, increased by a massive 46% in

nominal terms in 2013, strongly linked to Eskom’s

investments in its new power stations, Medupi and Kusile.

• The domestic economy’s energy intensity is illustrated by

substantial imports of both crude oil and refined petroleum

products, which totaled R144.5 billion and R65.3 billion,

respectively, in 2013. Together, these products accounted for

a 21.6% share of the overall merchandise import basket.

Interestingly, the value of South Africa’s oil imports was

equivalent to 43% of its mining exports in 2013, with the

figure rising to over 62% if petroleum imports are included.

• China retained its position as South Africa’s leading export

destination in 2013, being the recipient of 13.5% of non-gold

merchandise exports. Exports to China totaled R116 billion,

with iron ore alone claiming R51 billion or 47% of the export

basket destined for the Asian giant. Non-ferrous metal ores

(e.g. manganese, chrome) followed with an 18.3% share.

• Exports to traditional trading partners improved in 2013,

particularly in the case of the EU (18.1% increase in exports)

and Japan (+15.1%). Exports to the USA rose by a modest

4.3%, well below the 13.2% rise in total merchandise exports.

• The African continent has become an increasingly important

trading partner in recent years, accounting for 28.7% of South

Africa’s export basket in 2013 (25.7% in 2010. Botswana and

Namibia were the leading African markets and the export

basket destined for the rest of the continent is dominated by

manufactured goods, with machinery and equipment for

mining and agricultural activities being key export products.

Note: A new method, in line with United Nations guidelines, was used in classifying imported goods by type of category

0

10

20

30

40

50

60

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% S

hare

Composition of the merchandise import basket


Raw materials (incl. Crude oil)

Intermediate goods

Consumption goodsCapital goods

0

20

40

60

80

100

120

140

R B

illi

on

Export performance by key destination

2012 2013

Source: IDC, compiled from SARS data Note: Data including BLNS

0

10

20

30

40

50

60

70

80

90

100

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

% o

f E

xp

ort

s


Manufactured products


Gold

Other mining products


Commodities

Commodity prices

Gold and platinum

Brent crude oil

21

• Prices of non-fuel commodities in general have tended to

move sideways over the past two years, particularly where

agricultural raw materials and food commodities are

concerned.

• Metal prices, in turn, have not only exhibited a somewhat

pronounced downward trend but have also been more

volatile.

• The profile of global demand for commodities is also

gradually changing as growth in emerging markets

decelerates and the economic recovery in advanced

economies gathers momentum.

• Recent trends in commodity prices have been supportive of a

low inflation environment globally, although the sharp

depreciation of several emerging market currencies may be

countering the benefits in the respective economies through

imported inflation.

• Improving perceptions of risk at the global level, a relatively

low inflation environment internationally, expectations of

modest upward adjustments in interest rates going forward,

clear signs of recovery in major advanced economies and the

relatively good performance of equity markets and other asset

classes have continuously eroded the allure of gold as an

investment option or as a safe haven. This has been reflected

in the steep decline of the gold price over the course of 2013.

• Platinum prices remain depressed by subdued industrial

demand globally, particularly the automotive industry, by

recycling activity, and by lower physical investment demand

more recently. This is in spite of industrial action related

production losses in SA’s platinum industry, the world’s

largest supplier, with inventories playing a role in this regard.

• Substantial currency weakness has elevated gold and

platinum prices in rand terms, benefitting beleaguered local

producers to a considerable extent.

• Oil prices have trended slightly downward over the past two

years, as slowing growth in emerging markets combined with

increasing US energy independence eased demand

pressures. Supply side concerns surrounding political turmoil

in North Africa and the Middle East have moderated.

• However, upside risks are re-emerging due to Russia’s

involvement in the Ukraine, particularly concerns over a

potential escalation of geo-political conflict over the Crimean

issue.

• Relative stability in international oil prices, in conjunction with

favourable trends in other commodity prices, have supported

a largely benign inflation environment globally, especially in

advanced economies. In rand terms, however, progressively

higher oil prices have been impacting negatively on South

African inflation, with higher fuel prices gradually leading to

second round inflationary pressures.

0

200

400

600

800

1 000

1 200

1 400

20

40

60

80

100

120

140

160

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Ran

d /

barr

el

US

D /

barr

el

Brent crude oil price

Oil: USD / barrel

Oil: Rand / barrel

Source: IDC, compiled from IFS and Bloomberg data

0

50

100

150

200

250

300

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Ind

ex:

2005 =

100

Commodity price movements

Agricultural raw materials

Food

Metals

All non-fuel commodities

Source: IDC, compiled from IFS data

0

3 000

6 000

9 000

12 000

15 000

18 000

0

400

800

1 200

1 600

2 000

2 400

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Ran

d /

oz

US

D /

oz

Gold and platinum prices

Platinum : US$/oz Gold : US$/oz

Platinum : Rand/oz Gold : Rand/oz


Business cycle indicators

SARB business cycle indicators

BER business confidence indicators

BER/FNB confidence indicators

22

• The leading indicator has been moving sideways since 2010,

reflecting prospects of a very modest recovery of the South

African economy over time.

• The leading indicator edged marginally upward to 100.2 in

January 2014, from a revised 99.9 in December 2013, with

the positive contributions of five of its components

outweighing the negative influence of six other components to

a small extent. Negative contributions in January 2014

emanated from moderations in the leading business cycle

indicators of major trading partners, as well as softening

commodity prices. Domestic factors included a slowdown in

real M1 money supply, a declining number of new passenger

vehicles sold and slightly lower business confidence. Factors

that supported the leading indicator in January 2014 included

an increase in building plans passed, rising share prices on

the JSE, a higher number of job advertisements and the

differential between long- and short-term interest rates.

• Business confidence fell marginally to 41 points in Q1 of

2014, from 43 points in the preceding quarter. Confidence

levels have not only remained low but have been on a

declining trend since Q1 of 2013. Contributing factors have

included weak domestic growth and poor prospects, the

extent and protracted nature of industrial action, operational

challenges associated with issues such as energy supply and

other infrastructural bottlenecks, concerns over the

sustainability of the recovery in advanced economies and the

decelerating growth momentum in key emerging markets.

• Confidence among manufacturers has been generally weaker

than for the broader sample of respondents in the economy

for several years, but an improvement was recorded in Q1 of

2014 largely on the back of an improved export performance

and outlook. In contrast, confidence fell in all trade-related

sectors covered by the survey, with new vehicle dealers

voicing the steepest drop (by 14 points to 27) in Q1 of 2014.

• Confidence in the construction sector has improved since the

lows reached in 2011, with the civil engineering component

recording 66 points in Q4 2013, its highest level since Q3

2008. However, confidence levels fell to 55 in Q1 2014,

highlighting the sector’s continued challenges. The continued

roll-out of government’s infrastructure programme, albeit at a

slow pace, remains key for civil engineering services demand.

• The building industry has been affected by very subdued

household demand for new housing. Confidence levels in the

industry nevertheless improved to 52 points in Q1 of 2014,

the highest reading in more than five years.

• The interest rate hike in January 2014 and expectations of

further increases, coupled with rising inflationary pressures

and a yet fragile job market are likely to put a damper on

consumer spending, at least in the short-term, with potentially

negative implications for the building industry.

70

80

90

100

110

120

130

140

70

80

90

100

110

120

130

140

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Ind

ex:

2010 =

100

Ind

ex:

2010 =

100

Business cycle indicators

Coincident indicator (Lhs)

Lagging indicator (Lhs)

Leading indicator (RHS)


0

10

20

30

40

50

60

70

80

90

Q1 Q32007

Q1 Q32008

Q1 Q32009

Q1 Q32010

Q1 Q32011

Q1 Q32012

Q1 Q32013

Q1

Net

bala

nce

SA economy

Manufacturing


Neutral

Extreme confidence

Extreme lack of confidence

Business confidence in the SA economy

and in the Manufacturing sector

0

10

20

30

40

50

60

70

80

90

100

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

Q1

Ind

ex

Confidence in the construction industry

Civil engineering

Building industry


Miscellaneous indicators

Retail trade sales

New vehicles sales and exports


23

• The pace of increase in retail sales moderated substantially

during 2013 as a worsening consumer environment took its

toll on household expenditure. Retail sales growth averaged

2.8% in real terms, down from 4.6% in 2012.

• Furniture retailers recorded a 5.4% contraction in sales

volumes during 2013, as consumers reduced their spending

on durable goods, whose replacement can be postponed.

• Retailers that experienced relatively stronger sales were

clothing retailers (7.5% average growth) and hardware, paint

and glass retailers (5.9% average). The increase in the

hardware segment could point to an increase in DIY home

renovations, to the detriment of the formal building sector.

• Despite a strong and somewhat unexpected rebound in retail

sales in January 2014, limited financial space for consumers

with continued price increases in essential goods is expected

to keep retail sales under pressure over the short-term.

• Domestic vehicles sales in South Africa totaled 625 000 in

2013, a 3.2% increase or 19 000 additional units sold

compared to 2012.

• Nevertheless, the second half of 2013 saw a decline in

monthly car sales compared to the corresponding period in

2012. This trend continued in 2014, with the sales volume in

January being 8.3% lower year-on-year.

• The adverse impact of the protracted industrial action in the

automotive industry during the latter part of 2013 is reflected

in the total number of vehicles exported during the year,

which declined by 0.6% or 1 600 units.

• The industry is still struggling to recover, as illustrated by the

fact that in the first two months of 2014, 8 800 fewer vehicles

were exported relative to the same period a year earlier,

mainly passenger vehicles (-11 000), with light commercial

vehicles recording an increase of 2 400 over this period.

• The value of building plans passed has increased slightly in

real terms since 2011. The average increase in 2013

amounted to 11.9% y-o-y, significantly higher than the 4.3%

recorded in 2012.

• This favourable trend has translated into a higher value of

buildings completed, which increased by 10.4% in 2013.

• However, the residential building sector underperformed in

2013 both in terms of building plans passed and buildings

completed, reflecting the constrained financial position of

households. The non-residential buildings segment, in turn,

recorded increases in real terms of 34.8% in building plans

passed and 24.7% in buildings completed.

• Activity in the building sector appeared to have gained

momentum at the start of 2014, but the interest rate outlook

may stifle the trend.

-10

-5

0

5

10

15

20

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)

Retail trade sales in real terms


100

150

200

250

300

350

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Ind

ex:

2000 =

100


Building plans passed

Buildings completed


-250

-200

-150

-100

-50

0

50

100

150

200

250

-50

-40

-30

-20

-10

0

10

20

30

40

50

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)

% C

han

ge (

y-o

-y)

Domestic vehicles sales and exports

Domestic sales (Lhs)

Exports (Rhs)

Source: IDC, compiled from NAAMSA data

Miscellaneous indicators (cont.)

Foreign direct investment

Liquidations of companies

Petrol price and crude oil prices

24

• Foreign direct investment (FDI) inflows worldwide increased

by 11% in 2013 to USD 1.46 trillion, according to UNCTAD

estimates.

• Flows into developing economies reached an historical high,

with the grouping claiming 52% of global FDI inflows last year

Although slightly lower than the 54% share recorded in 2012,

it is a substantial gain relative to the 43% in 2011.

• The 6.8% increase in FDI flows into Africa towards a total of

USD56.3 billion was largely underpinned by the record

inflows experienced by South Africa (R79.1 billion in 2013,

compared to R37.4 billion in 2012) and Mozambique. In

comparison with other BRICS countries, South Africa posted

the best FDI growth performance in 2013.

• FDI inflows amounting to R20 billion were recorded by the

banking sector, whilst R58.9 billion were directed to the local

private non-banking sector.

• A declining trend in company liquidations was evident

throughout 2013, with a total of 2 374 companies having been

liquidated during the year compared to 2 716 in 2012. This

may be indicative of a degree of stabilisation in the business

environment.

• The majority of liquidations in 2013, whether in the case of

companies or close corporations, was of a voluntary nature.

• The highest concentration of liquidations was reported in the

business services and real estate sector, as well as in the

wholesale and retail trade sector. Theses two sectors are

characterised by low barriers to entry and are also amongst

the most vulnerable to changes in household spending

propensity, which has been weakening.

• Despite a greater degree of stability in international crude oil

prices, which have remained within a relatively narrow range

of USD119 to USD98 per barrel (Brent) since the start of

2013, petrol prices in South Africa have been escalating.

• The sharp weakening of the rand in the closing months of

2013 and early in 2014 underpinned the R1.14/l increase in

the petrol price (93 octane ULP, Gauteng) in the 1st quarter of

the current year to R14.11/l.

• The sharp increase in petrol prices thus far in 2014 is

expected to fuel inflation in South Africa, with the South

African Reserve Bank expected to remain vigilant so as to

contain second round pressures.

0

20

40

60

80

100

120

140

160

180

200

220

240

3

4

5

6

7

8

9

10

11

12

13

14

15

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Cru

de o

il in

US

D /

barr

el

Ran

d p

er

Lit

re

Petrol and crude oil price trends

Crude oil price (USD / barrel) - (RHS)

Petrol price: 93 ULP (Gauteng) - (R / litre)

Source: IDC, compiled from SAPIA and Bloomberg data

0

100

200

300

400

500

600

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

Nu

mb

er

Number of liquidations

Total

Companies

Close Corporations


-10

0

10

20

30

40

50

60

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

R b

illi

on

Foreign direct investment into South Africa


International indicators

World economic climate index


GDP growth in emerging economies

25

• Quarterly Ifo surveys revealed rather unfavourable views of

economic conditions globally for most of 2013.

• An improvement was, however, observed towards year-end

due to a generally improved economic performance in

advanced economies, with the Eurozone having emerged

from its longest recession. On the other hand, GDP growth

moderated in emerging economies, with China reporting a

somewhat disappointing economic performance, relative to

historical growth rates, in 2013.

• The Ifo’s assessment in Q1 of 2014 provided a more

optimistic view of the state of the global economy, as its world

economic climate indicator rose to almost a three-year high.

This was underpinned by improving prospects for North

America (especially the USA) and Europe (e.g. Germany, UK,

Italy, Spain, Portugal). In contrast, the outlook for Asia

deteriorated to some extent.

• Global growth dynamics have changed, with advanced

economies having switched to a relatively higher gear and

thus making greater contributions to world growth.

• The growth momentum in the USA accelerated from the start

of 2013 and peaked at 4.1% (q-o-q annualised rate) in the 3rd

quarter of the year. The government shutdown and

extraordinarily cold weather resulted in a more moderate

performance of 2.4% in the final quarter of 2013.

• Although the Eurozone emerged from recession in Q2 of

2013, largely due a stronger performance from Germany,

overall growth remains very modest, particularly in peripheral

countries. Signs of improvement are, however, becoming

clearer, with manufacturing production picking up.

• Japan, the world’s third largest economy, reported a softening

of its economic growth momentum in the 2nd half of 2013, due

to a moderation in consumer spending and exports.

30

40

50

60

70

80

90

100

110

120

130

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Ind

ex:

1995=

100

World Economic Climate

Source: IDC, compiled from Ifo data

Long-term average

Q1 2014

-20

-15

-10

-5

0

5

10

15

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

han

ge (

q-o

-q) *


USA

Japan

Euro area

Source: IDC, compiled from OECD data

-15

-10

-5

0

5

10

15

Q1 Q22007

Q3 Q4|

Q1 Q22008

Q3 Q4|

Q1 Q22009

Q3 Q4|

Q1 Q22010

Q3 Q4|

Q1 Q22011

Q3 Q4|

Q1 Q22012

Q3 Q4|

Q1 Q22013

Q3 Q4|

% C

ha

ng

e (y-o

-y)

GDP growth in the BRIC countries

Brazil Russia India China

Source: IDC, compiled from OECD, China (NBS) data

• Growth in emerging markets moderated to an estimated 4.7%

in 2013, from 4.9% in 2012.

• China is grappling with rebalancing its economy to reduce the

dependency on fixed investment activity and exports. GDP

growth came in at 7.7% for 2013 and is forecast to decelerate

to an average of 7.1% per annum over the next five years.

• India’s economic performance in 2013 benefitted from

favourable weather conditions, which supported higher

agricultural output, as well as stronger exports earnings.

Nevertheless, like China, its current and projected growth

rates are a fraction of the historical tempo.

• Brazil reported sluggish growth in 2013 mostly due to

lacklustre performances by mining and manufacturing.

• Growth in the Russian economy decelerated sharply to an

estimated 1.5% in 2013, from 3.4% in 2012. Note: Russia’s GDP growth for Q4 2013 not yet available

International indicators (cont.)

Equity market performance


Interest rates

26

• Several major stock markets around the globe, particularly

those of advanced economies, recorded solid performances

in 2013 due to renewed confidence over the pace and

sustainability of their economic recovery.

• In the USA, the S&P 500 ended 2013 about 30% higher on a

yearly basis and the Dow Jones gained 27%.

• In Europe, Germany’s DAX posted gains of almost 26% over

the course of 2013, France’s CAC recorded an 18% rise and

the UK’s FTSE 100 increased by just over 14%.

• Boosted by the “Abenomics” government policy, which entails

the "three arrows" of fiscal stimulus, monetary easing and

structural reforms, Japan’s Nikkei had a sterling performance

in 2013, rising by an extraordinary 57%.

• Brazili’s Bovespa had a dismal performance in 2013, ending

the year 15.5% lower, and China’s stock-market fell by 6.8%.

0

50

100

150

200

250

300

350

40

60

80

100

120

140

160

180

1

|

3 5 7

2005

9111

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Ind

ex:

Jan

uary

2005 =

100

Ind

ex:

Jan

uary

2005 =

100

Global equity markets

Dow Jones (Lhs) FTSE 100 (Lhs)

Nikkei (Lhs) Bovespa (Rhs)

Source: IDC, compiled from Bloomberg data

-3

-2

-1

0

1

2

3

4

5

6

7

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

% C

han

ge (

y-o

-y)


USA Euro area

Japan UK

Source: IDC, compiled from IFS and The Economist data

0

1

2

3

4

5

6

1

|

3 5 7

2006

9111

|

3 5 7

2007

9111

|

3 5 7

2008

9111

|

3 5 7

2009

9111

|

3 5 7

2010

9111

|

3 5 7

2011

9111

|

3 5 7

2012

9111

|

3 5 7

2013

9111

|

3

Perc

en

tag

e

International interest rates

USA (Federal funds rate)

Euro area (main refinancing operations)

Japan: Overnight call rate

Source: IDC, compiled from OECD, Federal Reserve, ECB and BoJ data

• Inflationary forces in advanced economies have remained

subdued in the light of weak demand conditions and lower

commodity prices.

• In the USA and Eurozone, the rate of increase in consumer

prices stayed below the 2% inflation target throughout 2013.

Although at relatively higher levels, consumer price inflation in

the United Kingdom embarked on a downtrend trend. The

European Central Bank has expressed concerns over

deflationary tendencies in the Eurozone, indicating its

readiness to act should the trend justify it.

• Plagued by deflation for a number of years, the rate of

increase in consumer prices in Japan accelerated to 1.6% by

December 2013 and measured 1.5% in February 2014.

• Considering a rather benign inflation outlook for the advanced

economies, the respective central banks are likely to keep

interest rates at historical lows for some time.

• In the absence of inflationary pressures, the monetary

authorities in the USA, Eurozone and Japan have been able

to hold interest rates at extremely low or even at historical low

levels throughout 2013.

• In the Eurozone, the European Central Bank reduced interest

rates by 25 basis points on two separate occasions during the

course of last year. This accommodative monetary policy

stance was taken to assist the gradual economic recovery,

whilst inflation prospects remain benign.

• In the USA, the Federal Reserve indicated that it will keep

interest rates at low levels for an extended period. This will be

the case as long as the unemployment rate is above 6.5%

and expected consumer price inflation does not exceed the

2% target range by more than 0.5 of a percentage point.

• In Japan, businesses can now borrow funds at a marginal

interest rate of 0.1% p.a. for a period of up to four years.



unsatisfactory.



years.


:



27

Balance of payments: Consists of three main accounts : (1) the current account, which is made up of visible trade (i.e. merchandise exports and imports) and invisible trade (i.e. payments and receipts for services such as transportation, travel, etc; income, including compensation of employees, investment income and current transfers); (2) the capital transfer account, which reflects net capital transfer receipts; and (3) the financial account, which consists of direct investment, portfolio investment (i.e. the selling and purchasing of assets such as shares and stocks) and other investment flows. Bond: A fixed interest-bearing security issued by the central government. Its yield to redemption is an arbitrary rate which reflects market conditions, including participants’ expectations. BER: Bureau for Economic Research at the University of Stellenbosch Effective exchange rate: Obtained by weighting the exchange rate between the rand and the currencies of major trading partners. The weights of the five major currencies are the following: Euro (34.8%), US dollar (14.9%), Chinese renminbi (12.5%), British pound (10.7%) and the Japanese yen (10.1%). FCEG: Final consumption expenditure by general government includes spending on individual goods and services (e.g. education, health and social services), as well as expenditure on collective goods and services to the benefit of the community as a whole (e.g. maintenance of law and order, public administration and defence). FCEH: Final consumption expenditure by households measures the sum of outlays on new goods and services by resident households, including private non-profit organisation. FDI: Foreign direct investment. GDE: Gross domestic expenditure is the total value of the expenditure by households, the corporate sector and general government on final goods and services. It differs from expenditure on GDP in that it includes imports but excludes exports. GDP: Gross domestic product is the total value of all final goods and services produced within the economy. GFCF: Gross fixed capital formation represents total spending by both the private and public sectors on tangible and intangible assets which have been produced and are themselves used continuously in product processes for more than a year (i.e. investment goods or articles which yield future benefits). General government: Central, regional and local authorities and extra-budgetary funds. Growth rates: Unless otherwise specified, these are obtained by calculating the percentage change between the figure for the current period and that of the corresponding period in the previous year. IFS: International Financial Statistics IMF: International Monetary Fund

Import cover: Refers to the number of days’ worth of imports which current reserves can cover. Interest rates: The prime rate is the lowest rate at which a clearing bank will lend money on an overdraft facility; the repo rate replaced the Bank rate as the benchmark interest rate in the economy on 9 March 1998 – this is the rate at which the central bank makes cash available to banks on a tender basis through repurchase agreements; banks that experience difficulties in obtaining cash can borrow from the central bank at the penalty rate, which is known as the marginal lending facility rate; and the BA rate is an abbreviation for “bankers’ acceptance rate”, which refers to the rate at which banks are willing to discount three-month bankers’ acceptance. JSE: Johannesburg Securities Exchange LHS: Left hand scale Money supply: M1 = the sum of coins and banknotes in circulation, cheque and transmission deposits plus other demand deposits; M2 = M1 plus other short-term deposits and medium-term deposits held by the domestic private sector; and M3 = M2 plus long-term deposits held by the domestic private sector. Price indices: The consumer price index (CPI) represents the prices of a basket of consumer goods and services, whereas the production price index (PPI) represents the prices of a basket of producer goods, including capital and intermediate goods. Public corporations: Government-owned businesses which are formally established and regulated by an enabling Act of Parliament, or companies wholly or mainly owned by public authorities. Real terms: A variable is “in real terms” when its value has been adjusted for changes in the purchasing power of money. This is carried out by deflating by an appropriate price index, with the resulting value being in “constant prices”. RHS: Right hand scale SARB: South African Reserve Bank Seasonal adjustment: Refers to the elimination of the seasonal variation in a time series. Stats SA: Statistics South Africa Trade balance: The difference between the exports and the imports of goods (excluding services). ULP: Unleaded petrol UNCTAD: United Nations Conference on Trade and Development.

27

Glossary of terms

Note: An in a specific graph indicates % change at constant prices, at a seasonally adjusted and annualised rate. *

Compiled by:

The Department of Research and Information

Industrial Development Corporation of South Africa Limited

PO Box 784055, Sandton, 2146, Gauteng, South Africa

For further assistance or information contact:

The Department of Research and Information

Tel: +27 11 269 3454 (Dianne Rymer)

Email: [email protected]

IDC Head Office:

19 Fredman Drive, Sandown, 2196

PO Box 784055, Sandton, 2146, South Africa

Tel: +27 11 269 3000

Fax: +27 11 269 3456

Call Centre: 0860 693 888

Email: [email protected]

Website: www.idc.co.za

Although every care is taken to ensure the accuracy of this publication, supplements, updates and replacement material; the

authors, editors, publishers and printers do not accept responsibility for any act, omission, loss or damage or the

consequences thereof, occasioned by a reliance by any person upon the contents hereof.

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