South Africa’s economy avoided falling into a technical recession by expanding by an annualised 0.6% in the three months through June.
This is no cause for celebration.
The drift towards negative growth is accelerating with four sectors moving into negative growth, compared with two in the first quarter of the year.
Mining and manufacturing reflected their second quarter of negative growth. They were joined in the second quarter by the consumer economy denoted by Stats SA as “wholesale, retail and motor trade; catering and accommodation” which declined by 0.2%; as well as the electricity, gas and water sectors which declined by 0.6% compared with the first quarter.
“Despite the fact that good performance from certain sectors pushed the overall growth rate into the positive, this suggests the negativity has spread, ” says Mike Schüssler.
Positive growth in the second quarter came from construction (+5%q/q), transport, storage and communication (+4% q/q), general government (+2.9%q/q) and finance, real estate and business services (+1.5%q/q).
However, the best of these figures, construction, warrants scrutiny. Within this number private sector construction declined – this includes private homes, shops and offices.
“The decline in buildings completed between the first and the second quarters of 2014 was 16.2% or 50.7% on a seasonal and annualised basis,” says Schüssler. “This is the biggest decline since April 2010 and again shows how fragile South African consumer and business confidence is at present.”
The fact that the construction sector advanced by 5% can be put down to government-led construction such as Medupi, the coal lines and the ports, he adds.
“With furniture sales in decline, car sales in decline and now buildings and the construction of new buildings in particular also in decline, we can see that the durable sector in South Africa is under severe pressure. This certainly means that a lack of long-term confidence has hit the economy hard.”
“This is a remarkably bad number no matter how you spin it,” says Mohammed Nalla, head of strategic research at Nedbank Capital. “Growth in the third and fourth quarters will most likely not be enough to push full year growth ahead of 2%. That is absolutely shocking. Even developed economies are growing at 2% or 3% and they face considerably lower risk.”
This means that South Africa faces the likelihood of achieving growth of less than 2% for the sixth year in a row.
The strikes across the platinum sector and metals industries have cost the economy dearly. While the industries themselves were harmed (witness the 9.4% decline in mining and 2.1% decline in manufacturing) the second round effects are underestimated. “For every person employed another five to ten people are supported. This is the multiplier effect which filters into the broader consumer economy,” he says.
The latest results season on the JSE bears testimony to this. Companies like Shoprite and Massmart revealed disappointing revenue and profitability growth.
Other macro-indicators are also negative. The purchasing managers index, an important indicator of conditions in the business sector has been below the 50-point mark, signaling a contraction, for four straight months.
In June the number of forced liquidations reached 89. “This was the highest number in five years and was followed by a high number – 47 – in July,” says Schüssler.
This is not conducive to attracting foreign direct investment, or to growing the number of jobs in the economy. Government has driven employment in the past five years. The government salary bill, at 14% of GDP is one of the five highest in the world. It accounts for 29% of the total salary bill in the country and 22% of the workforce. “Government cannot employ more people unless public sector workers take a paycut. We have to grow private sector jobs,” he says.
One hope is that growth in the global economy, combined with a weaker currency will help to boost exports. “If the global economy builds momentum we should get trickle-down. But that is not a strategy,” says Nalla. “That is simply rising with the rising tide. We need a plan to take this economy to the next level.
“We need foreign direct investment, but unfortunately investors are looking for the growth story – and that is not here.
“Blaming labour or under-investment by the private sector or monetary policy, is not the solution,” he says. “We need to step back from issues and look at the problem from 50 000 feet.”
But no-one is listening.
Judging from these latest numbers, the state, in its desperation to drive growth, is crowding out the private sector. That cannot lead to strong growth in the long run.