2014Q1 | 12 March 2014
Please refer to the glossary on the BER’s website for explanations of technical terms.
Economic Prospects
Economic activity expected
In 2014 through 2016
Fourth quarter 2014
Vol. 29 No. 4
i
Editor: Hugo Pienaar
Email: [email protected]
Tel: +27 21 887 2810
Fax: +27 21 883 3101
Forecasting team:
Janine Brits
Linette Ellis
Christelle Grobler
Lisette IJssel de Schepper
Harri Kemp
George Kershoff
Craig Lemboe
Mia Slabber
Ben Smit
Nicolaas van der Wath
Cobus Venter
Technical assistance:
Ester Manefeldt
Language Editor:
Jenny Terwin
© Stellenbosch University
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of Stellenbosch University.
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ii
Forecast in a nutshell
2014 2015 2016
Final Consumption Expenditure, Households 2.0 3.0 3.5
Durable goods 4.5 3.8 4.9
Semi-durable goods 4.4 4.3 5.0
Non-durable goods 0.7 2.5 2.7
Services 1.6 2.8 3.2
Gross Fixed Capital Formation 2.9 3.4 4.1
Private residential -7.2 1.9 3.6
Private excluding residential 3.1 3.6 4.0
Government 6.0 2.9 4.4
Public Corporations 2.4 3.5 4.6
Exports of Goods and Services 4.2 6.1 4.9
Non-gold exports 4.4 6.0 5.1
Interest Rates (fourth quarter averages)
3 month BA rate 6.16 6.66 6.87
10-year Government bond yield 8.38 8.74 8.75
Prime overdraft rate 9.38 10.00 10.50
Inflation (annual average %)
Producer prices 7.7 6.0 5.7
Consumer prices 6.3 5.6 5.6
Nominal wage rate 7.1 8.1 8.0
Exchange Rates (fourth quarter averages)
R/US dollar 10.95 11.18 11.42
R/Euro 14.09 13.75 14.28
R/Pound sterling 18.07 18.22 18.50
R/100Yen 10.23 10.30 10.38
Gross Domestic Expenditure 1.0 3.4 3.5
Gross Domestic Product 1.4 2.9 3.0
Current Account Balance (R billion, seas. adj.) -205.9 -231.7 -238.3
(as % of GDP) -5.6 -5.9 -5.5
iii
This report was completed on 12 October 2014.
Please refer to the glossary on the BER’s website for
explanations of technical terms.
Executive summary Large twin deficits and weak GDP growth suggest that the SA economy remains
vulnerable to domestic and global shocks. GDP growth slowed down further to 1.5%
y-o-y in the first half of 2014 from 1.9% recorded in 2013. At 0.6% q-o-q
(annualised), growth in 2014Q2 turned out weaker than we expected in June.
Combined with the negative impact that the July metals and engineering strike will
have on growth in 2014Q3, we have again downgraded the GDP growth forecast for
2014. Growth is now forecast at 1.4%, down from 1.7% projected in June. Assuming
less industrial action and somewhat improved global growth, there is scope for
domestic GDP growth to bounce back towards 3% in 2015 and 2016.
Although there are pockets of strength
internationally, mainly in the US, the global
environment has become less favourable
towards SA. Increasingly divergent monetary
policy paths in the US and Eurozone (EZ) are
fuelling a rapid rise in the value of the US dollar.
The rand exchange rate has been hit particularly
hard. Recent growth setbacks in the EZ and China
also hold negative implications for SA. Because of
its outsized impact on key commodity prices,
doubts about Chinese growth are of particular
concern.
After weakening to an average of R10.70/$ in the
first half of 2014 (from R9.65/$ in 2013), the
rand lost further ground to average R10.98/$ in
September. At the time of writing, the currency
was languishing above R11/$. While the recent
weakness has mainly been a function of US dollar
strength, data showing continued large domestic
trade and current account deficits has also had an
adverse impact. Uncertainty regarding the
successor to Gill Marcus as governor of the SA
Reserve Bank (SARB) may also have contributed.
These developments require a downward revision
to our rand forecast. The currency is now expected
to end 2014 around R11/$ versus R10.70/$
forecast in June. Given recent trading ranges, the
risk is for an even weaker exchange
rate over the short term. With US interest rate
normalisation set to be a multi-year process that
may continue to support the greenback, the rand
is on course to remain under pressure through
2016. The currency is expected to average
R11.18/$ (R10.95 forecast in June) and R11.42/$
in 2015Q4 and 2016Q4 respectively.
Despite the softer rand outlook, we are sticking
with the view that the consumer inflation (CPI)
peak is behind us. This is in part informed by a
lower oil price outlook and positive food price
(global and domestic) developments. Subdued
domestic demand conditions should also continue
to put a damper on firm pricing power, although
risks are on the upside. Against this backdrop, the
CPI forecast was kept largely unchanged at an
average of 6.3 and 5.6% for 2014 and 2015. CPI
is projected to moderate back below the 6% upper
inflation target in 2015Q2. In 2016, CPI is
expected to stabilise at an average of 5.6%.
The contained inflation and subdued growth
outlook suggests that the SARB can continue with
a moderate interest rate hiking cycle. The
current pressure on the rand may force the central
bank’s hand in hiking by another 25bps at the
November 2014 MPC meeting. Another 50bps
increase is pencilled in for the first half of 2015,
followed by a similar rise (+50bps) in 2016H1.
Contents Introduction ................................................................................................................................... 1
Global developments ....................................................................................................................... 2
US leading the pack as Eurozone and China concerns surface anew ................................................... 2
Summary: World growth flat in 2014 ........................................................................................... 6
Growth concerns and strong dollar weigh on commodities ................................................................ 7
Domestic outlook .......................................................................................................................... 10
Rand suffers renewed bout of selling pressure .............................................................................. 11
Inflation past the peak, but upside risks remain ............................................................................ 13
Further interest rate hikes on the cards ....................................................................................... 14
Overall consumer spending may have bottomed ........................................................................... 16
Private investment struggle continues.......................................................................................... 19
Summary – GDP growth outlook remains constrained ....................................................................... 21
Addendum ................................................................................................................................... 23
Statistics of the quarterly forecast, 2014 -2016 ............................................................................ 23
List of tables Table 1: Global economic outlook ..................................................................................................... 7
Table 2: Subdued commodity price outlook ........................................................................................ 8
Table 3: MPC interest rate scorecard ............................................................................................... 15
Table 4: Outlook for real consumer spending ................................................................................... 18
List of figures Figure 1: US factory sector showing strong growth, rest of world under pressure ................................... 2
Figure 2: US employment numbers on the up .................................................................................... 3
Figure 3:Eurozone sentiment indicators bode ill for growth .................................................................. 4
Figure 4: Iron ore price down sharply as China slows .......................................................................... 6
Figure 5: Interest rate differentials move in dollar’s favour .................................................................. 7
Figure 6: Emerging currencies losing ground against the resurgent dollar ............................................ 11
Figure 7: Rand oil price and inflation correlation broke down in recent years ........................................ 13
Figure 8: Confidence indicators point towards consumer improvement ................................................ 16
Figure 9: Non-durable sales volume growth ground to a halt in 2014H1 .............................................. 17
Figure 10: Very weak residential investment weighs on private sector outlays ...................................... 19
Figure 11: GDP growth of above 3% unlikely anytime soon ............................................................... 22
1
Introduction1 The SA economic performance remains subpar with 2014 GDP growth forecasts
revised lower. The fallout from the five-month platinum mining strike depressed
domestic economic activity in 2014Q2. In particular, private sector fixed investment
and export volumes were adversely impacted. The resolution of the platinum (June)
and manufacturing sector (July) strikes should boost output levels in these sectors
from 2014Q4. However, a less favourable global environment and local structural
impediments suggest that SA GDP growth will remain below potential through 2016.
SA GDP and
inflation on
different paths in
2014H1
GDP growth moderated further to 1.5% y-o-y in the first half of 2014, from an
already depressed 1.9% in 2013. At the same time, consumer inflation
accelerated to an average of 6.2% in the first half of 2014, up from 5.7%
measured in 2013. The diverging growth and inflation paths complicated the
interest rate decisions taken by the SA Reserve Bank (SARB). After an initial
50bps repo rate hike in January, the SARB raised the policy interest rate by
another 25bps in July 2014. This signalled a move to more moderate rate moves
in future as the central bank guards against a build-up of underlying price
pressures, but at the same time remains concerned about the fragile GDP growth
outlook.
BER surveys
point towards
improved growth
in 2014H2
The latest BER survey results indicate that GDP growth should accelerate
somewhat in the final six months of the year. The RMB/BER business confidence
index increased from 41 in 2014Q2 to 46 in Q3. This presents the first noticeable
increase in the index since confidence fell from 48 to 42 in 2013Q3. On the
manufacturing front, the Kagiso PMI™ rose back above the neutral 50-point mark in
September and signalled growth for the first time since March 2014. The increase to
50.7 was mainly driven by an improvement in the business activity index.
Consumer may
be in better
health than
generally
assumed
Against the general downbeat consumer mood, there are even some more
positive trends. Although the FNB/BER consumer confidence index (CCI) slipped
back to a level of -1 in 2014Q3 from a surprisingly strong +4 in 2014Q2, it
remained above earlier lows. This is heartening and points to an improved
willingness among consumers to spend relative to the same time a year ago.
While the CCI data may indicate that we have reached the bottom in terms of
real consumer spending, growth will likely remain subdued going forward. This
could also be the case for overall GDP growth.
Starting with an overview of the global economic outlook, the rest of the report
provides a more in-depth overview of our latest forecasts.
1 This report was completed on 12 October 2014.
2
Global developments This section provides an overview of the international assumptions underlying the BER’s latest forecast.
Global recovery
remains uneven
US leading the pack as Eurozone and China concerns surface anew
In the lead-up to the October IMF meetings to discuss the health of the world
economy, IMF Managing Director Christine Lagarde characterised the global
recovery as “brittle, uneven and beset by risks”. Lagarde highlighted low growth
expectations (constraining current fixed investment and consumption activity),
diverging monetary policy normalisation in advanced countries, a build-up of
financial excesses (all-time high asset valuations) and a number of geopolitical
developments as among the most important risks to the global outlook.
Figure 1: US factory sector showing strong growth, rest of world under pressure
Source: US ISM, Markit
US economy on a
more solid
footing
The one shining light is the recent performance of the US. After a disappointing
first quarter, US quarterly GDP growth rebounded sharply to above 4% in
2014Q2. Forecasts for Q3 and Q4 have been upgraded in the wake of recent
solid data releases. Figure 1 plots the manufacturing PMI numbers for the US,
Eurozone (EZ) and China. While the figures suggest that growth in the sector has
stalled in the latter two regions, the US factory sector is expanding at a brisk
pace. A number of other indicators also reveal robust underlying growth
momentum. Of particular importance is improved job growth.
On average, the US economy created 226,000 jobs in the first nine months of
2014. Job growth averaged 194,000 in 2013. The accelerated employment
creation helped push the unemployment rate down to 5.9% in September.
30
35
40
45
50
55
60
65
Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14
Index points
US HSBC China Eurozone
3
However, challenges remain. A record low labour force participation rate is partly
responsible for the declining jobless rate, while an expanded definition of
unemployment remains above 10%.
Figure 2: US employment numbers on the up
Source: US Labor Department
US growth set to
accelerate
towards 3% in
‘15/’16
Looking forward, a reduced pace of fiscal consolidation and an improved flow of
credit through the economy should support business fixed investment and
consumer spending. However, the strong asset price (stock and property)
growth of the recent past is unlikely to continue in an environment where the US
central bank (Fed) is likely to start increasing the policy interest rate from the
second half of 2015. Subdued general inflation and wage growth in particular
should ensure that the pace of rate hikes is moderate. At this stage, US GDP
growth is set to accelerate towards 3% in 2015 and 2016.
EZ suffering from
a number of ills
Conditions in the Eurozone are a lot less healthy. The region exited a double-dip
recession in 2013Q2 and posted mild positive (quarterly) growth through
2014Q1. However, against expectations, growth stalled in 2014Q2 as the
German and Italian economies contracted. France showed no growth for the
second consecutive quarter. EZ growth is being held back by a number of
factors, including:
A lack of domestic demand in many countries as the effects of tax
increases and government expenditure cuts since 2010 continue to take
their toll.
Subdued bank lending, influenced by weak demand and asset quality
problems in the banking sector.
The Russian standoff and the negative impact this is having on
confidence levels, especially in Germany. The European powerhouse
-900
-700
-500
-300
-100
100
3004
5
6
7
8
9
10
11
Dec-07 Oct-08 Aug-09 Jun-10 Apr-11 Feb-12 Dec-12 Oct-13 Sep-14
'000 %
Non-farm payrolls (6-month moving average, rhs) Unemployment rate
4
exports a lot of capital equipment to Russia and other Eastern European
countries who may be negatively impacted by the weak Russian
economy.
Weak corporate fixed investment in the face of an uncertain economic
outlook.
German economy
set for poor third
quarter
The incoming data for 2014Q3 does not suggest a quick turnaround. The EZ
composite PMI, which includes trends for the manufacturing and services
industries, declined to a 10-month low of 52 points in September. At a level of
52.8, the average reading for Q3 was the lowest in 2014, albeit that it is
consistent with mild positive GDP growth. Perhaps of greatest concern is the
apparent soft patch in Germany, the EZ’s largest economy and growth engine.
The Ifo Institute’s business climate indicator for Germany posted a fifth
consecutive monthly decline in September (see figure 3). Given the historical
GDP correlation, this does not bode well for German growth in the second half of
the year. Furthermore, in August monthly German factory orders declined by the
most since early 2009. This is in line with weak industrial production. Output
declined by 4% m-o-m in August, the weakest performance since 2009.
Figure 3:Eurozone sentiment indicators bode ill for growth
Source: Ifo Institute, Eurostat
’14 EZ growth
forecasts revised
down to below
1%
The region also continues to struggle with too low inflation. The y-o-y increase in
EZ consumer inflation slowed to only 0.3% y-o-y in September. Lower energy
costs partly explain the easing in price pressure, but other more structural issues
are also at play. These include below-potential growth levels, in part driven by a
lack of domestic demand. Against this backdrop, growth forecasts for 2014 and
2015 have been scaled down. Indeed, the latest projections indicate that EZ
growth of less than 1% is expected for 2014 and just above 1% in 2015.
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
70
75
80
85
90
95
100
105
110
115
120
1995Q2 1998Q1 2000Q4 2003Q3 2006Q2 2009Q3 2011Q4 2014Q3
q-o-q % change Index
German Ifo business climate index (lhs) Eurozone GDP growth
5
Impact on SA: Although the rest of Africa is an increasingly important foreign
market for domestically produced goods, the EZ remains a key export
destination. This is especially the case for the agricultural and manufacturing
(including refined platinum) sectors. Along with a number of domestic
constraints, weak EZ demand limits the extent to which domestic exporters can
benefit from the weaker rand exchange rate. On that note, the EZ growth
weakness is indirectly responsible for the renewed rand weakness versus the US
dollar of late. The diverging monetary policy paths in the EZ and US have fuelled
a significant dollar rally versus the euro. The rand historically tracks the trend for
the euro/dollar fairly closely.
Growing concerns
about China as…
Arguably the most important global concern at this stage is the developments in
China. GDP growth stabilised at 7.5% y-o-y in 2014Q2, in line with the
government’s target for 2014. However, growth has largely been maintained
through sustained strong fixed investment growth. The problem with this is
twofold. First, it has exacerbated Chinese economic imbalances, i.e. weak
consumer spending and an over-reliance on fixed investment. Second, and
perhaps more worrisome, is that the most recent investment boom has been
credit fuelled. This resulted in a rapid rise of China’s overall debt levels. The
sustainability of this growth model is increasingly being scrutinised, especially as
an overvalued property market (a key part of the investment boom) is showing
signs of stress.
… Q3 data
disappoints on
the downside
Across a broad spectrum, the latest Chinese data releases are indicative of a
build-up of stress. Bank lending growth has been slowing down for some time
with no growth recorded in August. In the same month, industrial output growth
slowed to 6.9% y-o-y, the weakest since March 2009. Fixed asset investment
growth was also the weakest since 2001. Reacting to strains developing in the
financial sector, the Chinese central bank responded through liquidity injections
to the five major banks. In its latest country report on China, the IMF argues
that the Chinese authorities have a number of buffers to prevent a short-term
financial crisis. However, it is by no means certain that the government will
reach their 7.5% GDP growth target for 2014. Growth forecasts have been
revised down closer to 7%, which would still be a fairly solid performance. More
importantly, the risk of a major Chinese economic crisis will increase the longer
the authorities postpone structural reforms to rebalance the economy.
Impact on SA: Given our dependence on commodity exports, the major impact
that a weaker Chinese economy will have on SA is through the demand for and
price of important raw materials. The price of a number of important domestic
export commodities, including platinum and iron ore (figure 4), have declined
sharply in recent months. To an extent this reflects concerns about the Chinese
economic outlook. Sustained lower commodity prices will result in a continued
6
large domestic current account deficit. This has implications for the rand
exchange rate, as well as our inflation and interest rate prospects.
Figure 4: Iron ore price down sharply as China slows
Source: IMF, Thomson Reuters
Lower commodity
prices and Ebola
weigh on SS-
Africa
The weaker outlook for China and lower commodity prices are also a negative for
the greater Sub-Saharan Africa region. Many of these countries are highly
dependent on sustained high commodity prices. For example, if sustained, the
recent sharp fall in the oil price will be negative for Nigerian and Angolan growth
prospects. The Ebola virus outbreak in West Africa is another negative as border
closures negatively impact regional trade. Despite these concerns, the region is
still expected to post solid growth of 5%+ through 2016 as infrastructure
developments and robust domestic demand continue to provide a boost.
IMF projects
3.3% global
growth in ‘14
Summary: World growth flat in 2014
The setbacks to global growth in the first half of 2014 are reflected in the IMF’s
latest (October) forecast update. World GDP growth is now projected at 3.3%,
i.e. similar to 2013. While the EZ that moves from contraction to mild expansion
will boost advanced country growth in 2014, weaker expected growth in China,
Russia and Brazil sees emerging markets underperform compared to 2013
(see table 1 on next page).
Going forward, global growth is projected to accelerate closer to 4% in 2015 and
2016. For the advanced economies, the improvement is driven by the US. The
EZ recovery is also expected to gather some momentum, but growth in Japan is
set to remain pedestrian below 1%. Despite a weakening trend for China,
emerging market growth can expect a boost from an improved performance by
India and to a lesser extent Brazil. At a projected average of 5.6%, growth in
Sub-Saharan Africa should significantly outperform the global average between
6
7
8
9
10
11
12
13
14
15
80
100
120
140
160
180
200
Feb-11 Oct-11 Jul-12 May-13 Mar-14
y-o-y % change $/tonne
Iron ore (lhs) China industrial output
7
2014 and 2016.
Table 1: Global economic outlook
y-o-y % change 2013 2014 2015 2016
World 3.3 3.3 3.8 4.0
Advanced countries 1.4 1.8 2.3 2.4
USA 2.2 2.2 3.1 3.0
Euro area1
-0.4 0.8 1.3 1.7
Japan 1.5 0.9 0.8 0.8
Developing countries 4.7 4.4 5.0 5.2
China 7.7 7.4 7.1 6.8
India 5.0 5.6 6.4 6.5
Emerging Europe 2.8 2.7 2.9 3.3
Latin America and Caribbean 2.7 1.3 2.2 2.8
Sub-Saharan Africa 5.1 5.1 5.8 6.0 118 Eurozone Countries
Source: IMF World Economic Outlook, October 2014
US dollar on the
rise
Growth concerns and strong dollar weigh on commodities
Arguably, the financial market story of the third quarter was the broad-based
surge in the value of the US dollar. This is reflected in figure 5, which plots the
US dollar index. It measures the value of the dollar relative to a basket of foreign
currencies. The index is dominated by the dollar’s movement against the euro.
The greenback strengthened by more than 3% versus the euro in 2014Q3. This
was largely as a result of diverging monetary policy paths.
Figure 5: Interest rate differentials move in dollar’s favour
Source: Thomson Reuters
In the US, the central bank is scaling back the rate of asset purchases
65
70
75
80
85
90
-1
-1
0
1
1
2
2
Oct-04 Jun-06 Feb-08 Oct-09 Jun-11 Feb-13 Oct-14
Index %
US/German 10-year bond spread (lhs) Trade weighted dollar
8
Interest rate
differentials
strongly in
dollar’s favour
(quantitative easing) and moving closer to the first increase in the policy interest
rate. In contrast, the European Central Bank (ECB) is adding more stimulus amid
a faltering recovery and deflation concerns. Figure 5 highlights the close
correlation between US/EZ interest rate differentials and currency movements.
Our view has long been that precisely because of an expected widening in rate
differentials, the US dollar will gain ground against the euro. However, the
magnitude of the dollar’s recent rise came as somewhat of a surprise.
Yen set to remain
under fire
Looking forward, there is scope for further dollar gains. At this stage, the first US
interest rate increase is pencilled in for mid-2015. Interest rate normalisation is
likely to be a multi-year process through at least 2016. Over that period, it
seems unlikely that the ECB will be thinking about tightening policy. The
opposite is more likely, i.e. enhanced stimulus measures. This may take the form
of a full-scale quantitative easing programme. Against this background, the euro
is likely to trade in a range of $1.20 to $1.25 through 2016. The dollar is also set
to build on its recent gains against the Japanese yen. As with the ECB, the
Bank of Japan may announce more aggressive monetary support measures if
inflation fails to consistently rise to its 2% target and / or growth falters again.
Oil and precious
metals taking
strain
The resurgent dollar has been one of the key factors responsible for the decline
in leading commodity prices so far in 2014. From a local perspective, the sharp
fall in the Brent crude oil price is shielding some of the inflationary impact from
the weaker rand exchange rate. At the time of writing, the oil price was trading
around $90/bbl. Considering that the price was quoted at $115/bbl at the end of
June, this is a dramatic decline. A number of factors are at play here, including
weak oil demand growth in the Eurozone and Japan. China’s one time insatiable
thirst for oil has also been lessened by the slowdown in GDP growth. Reduced
concern about potential short-term output disruptions caused by unrest in Iraq
and Libya also contributed to the decline.
Table 2: Subdued commodity price outlook
quarterly average YTD % ch 2014Q4 2015Q4 2016Q4
Industrial commodities (2005 = 100) -6.7 146.0 154.0 160.0
Brent crude oil ($/barrel) -18.0 103 105 105
Platinum ($/oz) -9.5 1348 1415 1505
Gold ($/oz) -0.5 1225 1195 1180
Source: Reuters, BER forecast
US production
surge key oil
market driver
While these are important developments, the major factor seems to have been a
renewed focus on the sharp fall in US oil imports as the shale boom dramatically
reduces US dependence on foreign oil sources. For example, in July the US
imported no Nigerian crude oil for the first time in more than 20 years. Our
current oil price assumptions remain conservative at just above $100/bbl
9
through 2016. At this stage the risk is for lower prices, especially if US oil output
continues to rise. This implies an oil price that remains below $100/bbl through
2016. However, we are cognisant of the risks of future supply disappointments,
especially if tensions in Russia and Iraq result in reduced investment in oil
infrastructure. Along with the potential for renewed conflict in the Middle East
and expectations for stronger global growth in 2015 and 2016, oil may again
move higher.
EZ growth
recovery and SA
supply difficulties
set to boost
platinum
Gold and platinum prices have tracked oil lower. Besides a return of physical
demand at these lower price levels, there is little to support gold. Global inflation
remains contained, while a stronger dollar and US interest rate normalisation
should all conspire against the gold price in the next number of years. Platinum
may have some upside potential, especially once the European vehicle market
recovers. On the supply side, South African platinum shipments may remain
constrained by labour-related issues and the potential for the major platinum
mining companies to exit loss-making shafts.
10
Domestic outlook This section discusses the BER’s outlook for the domestic economy.
SA avoided a
technical
recession
The SA economy posted moderate GDP growth in 2014Q2 after the contraction
suffered in Q1. The economy expanded by 0.6% q-o-q (saar)2 in Q2. This
followed the 0.6% q-o-q decline in the first quarter. Despite the growth
recovery, the softness in the economy was emphasised by the (seasonally
adjusted) annual growth rate that slowed sharply to 1.1% y-o-y in Q2 from the
1.8% recorded in Q1. GDP growth slumped to a meagre 1.5% y-o-y in the first
half of 2014, down from the 1.9% recorded in 2013.
Weak underlying
growth
momentum
While the headline growth figure confirmed that the SA economy escaped going
into a technical recession of two consecutive quarters of declining GDP, the
2014Q2 data provided little to be cheerful about. Indeed, whereas the Q1 GDP
weakness was largely concentrated in mining and manufacturing, in Q2 the trade
(retail, wholesale and motor trade, catering and accommodation) and electricity
sectors also moved into negative territory.
Metals strike set
to weigh on Q3
growth, Q4 could
see nice bounce
Barring no further disruptive industrial action or global shocks, the second half of
2014 should see an improved domestic GDP growth performance. However,
there are some caveats. The month-long strike in the metals and engineering
sector in July will continue to weigh on the manufacturing sector in Q3. On the
mining front, platinum production should recover from the five-month strike in
the first half of the year. However, the platinum mining companies have
indicated that the return to full (or steady state) production is only likely to be
achieved in 2014Q4. Despite the expected slow return to previous production
levels, in light of the pervasive impact that the platinum strike had on the
manufacturing sector and consumer spending in especially Rustenburg and
certain parts of the Eastern Cape, a normalisation of output in the platinum belt
may have an outsized positive impact on the rest of the economy.
As a result, a robust q-o-q (saar) growth bounce of 4 to 5% is forecast for
2014Q4. Despite this, we have again downgraded the GDP growth forecast for
2014 to 1.4% from 1.7% expected in June when we last updated the forecast.
2 Expressed at a seasonally adjusted and annualised rate.
11
After Q2
reprieve, rand
lost ground in Q3
Rand suffers renewed bout of selling pressure
After weakening for eight consecutive quarters (2012Q2 to 2014Q1) against the
US dollar, the rand exchange rate found some respite in 2014Q2. The currency
strengthened to an average of R10.54/$ from R10.87/$ in Q1. The reprieve
proved to be short lived as the rand lost ground again, averaging R10.76/$ in
Q3. Since the beginning of September, the local currency has averaged weaker
than R11 to the dollar.
Figure 6: Emerging currencies losing ground against the resurgent dollar
*Brazil, Russia, India and Indonesia
Source: Thomson Reuters
As in ’13, global
factors drive
rand weakness
Figure 6 plots the rand’s movement against the dollar since mid-2012. This is
compared to the trend for other so-called fragile currencies, as well as a basket
of less fragile emerging market and commodity-based currencies. Whereas the
rand’s initial decline in 2012 was driven by local factors, since May 2013 global
developments have started to play a bigger role in explaining the currency’s
moves. This of course does not mean these local concerns have necessarily gone
away, rather that international forces have overtaken them. This is also the case
with the most recent period of rand decline. Towards the end of the graph it is
clear that even the more respected emerging currencies have weakened against
the dollar of late.
The latest rand decline can largely be explained by the sharp US dollar gains
outlined earlier. However, the larger than expected Q2 current account deficit, a
surprisingly large August trade deficit and uncertainty about the successor to Gill
Marcus as SARB governor in all likelihood exacerbated the rand’s decline. From a
longer-term perspective, an apparent lack of political will to implement much
needed structural reforms to boost SA’s long-term growth potential, as well as
the labour relations and electricity constraints to growth, has eroded foreign
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12
investor confidence in SA. Data from the Johannesburg Stock Exchange reveal
that foreign investors bought a net R34bn worth of SA stocks and bonds between
January and September 2014. This is down from the R60bn purchased in the
corresponding period of 2013.
Domestic rand
constraints likely
to remain
Perhaps the best starting point to gauge the future path of the rand is to take a
view on whether the factors that have driven the currency weaker since 2012 are
likely to turn around / improve. The prognosis is not great. We already outlined
the case for the US dollar to remain on a firm footing through 2016. This implies
limited possibility for the rand to stage a meaningful recovery. Domestically, the
currency negatives are unlikely to be resolved anytime soon. These include:
Lack of trust between business, labour and government that is required
to forge a common vision on how to address the country’s structural
weaknesses, including weak education outcomes and the subsequent
skills shortages and high unemployment levels.
Labour relations remain precarious. The next big test will be the public
sector wage negotiations. The initial demands from the unions, including
a 15% wage hike, do not bode well for a speedy resolution.
Declining terms of trade, infrastructure constraints and general
competitiveness issues suggest that the current account deficit will
remain large (5.5 to 6% of GDP). This has been a key local driver of rand
weakness as it requires increasingly large amounts of foreign capital as
financing.
Rand weakness
set to continue
through ‘16
These developments require a downward revision to our rand forecasts. The
currency is now expected to end 2014 around R11/$ versus R10.70/$ forecast in
June. With US interest rate normalisation set to be a multi-year process that
may continue to support the greenback, the rand is on course to remain under
pressure through 2016. The currency is expected to average R11.18/$ (R10.95
forecast in June) and R11.42/$ in 2015Q4 and 2016Q4 respectively. These
forecasts imply that the rand will remain on a weakening trend through 2016.
Risks to the exchange rate forecast
Given recent trading ranges, the risk is for an even weaker exchange rate over
the short term. On the domestic policy front, the Medium-Term Budget Policy
Statement (MTBPS) on 22 October and the November interest rate meeting hold
short-term risks for the rand. Regarding the MTBPS, the rating agencies and
foreign investors will be looking for a clear indication that government remains
committed to fiscal sustainability over the medium term. Credible fiscal plans
may provide a welcome boost to the currency.
13
Regarding global factors, an important question is to what extent US interest
rate normalisation is already discounted in the value of the US dollar and rand.
The magnitude of recent moves suggests that the markets are fully discounting a
start of US rate hikes by mid-2015. A continuation of strong US data releases
could further fuel these expectations, leading to continued dollar gains / rand
losses. Any US growth setbacks or comments from US policymakers that hint at
a postponement of the start of rate hikes should have the opposite effect.
Inflation past the peak, but upside risks remain
Consumer inflation (CPI) accelerated to an average of 6.5% y-o-y in 2014Q2,
the highest since 2009, before easing somewhat to 6.4% in August. We remain
of the view that CPI peaked in 2014Q2. However, consumer inflation is likely to
remain above the SARB’s upper 6% inflation target until early 2015.
Sharply lower oil
price bodes well
for inflation
outlook
A positive development for the inflation outlook is the sharp oil price decline,
which is providing a buffer against the potential adverse price impact of the
significant recent rand weakness. Figure 7 indicates that the rand oil price is
down almost 15% since July 2014. Of interest is the breakdown in the
relationship between the rand oil price and CPI inflation in recent years.
Historically, there was a very close correlation, but CPI remained relatively stable
since 2012 despite a major increase in rand oil costs. A large output gap (GDP
growth below potential) and firms absorbing higher input costs in order to
preserve volumes may explain the muted CPI response in recent times.
Figure 7: Rand oil price and inflation correlation broke down in recent years
Source: Stats SA, Thomson Reuters
Given the hit to company margins of late, the question then becomes whether
lower energy input costs will be passed on to the consumer and fully reflect in
the CPI? This is especially relevant as other input costs continue to rise.
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Wage costs on
the rise
According to Andrew Levy Employment Publications, the average wage
settlement in collective bargaining agreements amounted to 8% in the first half
of 2014, i.e. almost 2 percentage points above the headline CPI rate.
Furthermore, recent amendments by the National Energy Regulator will result in
double-digit electricity tariff hikes (12.7%) in 2015. Combined with the weaker
rand exchange rate, these trends suggest that CPI is likely to remain stubborn
between 5.5 and 6% over the forecast period to 2016. Risks are on the upside.
Reduced food
price pressure
There are more positive developments at the start of the food price supply chain.
Despite increasing in September, domestic white maize futures prices are down
almost 50% since reaching a peak around R3,500/tonne in March. The decline
contributed to the moderation in the agricultural (mainly food) producer price
index (PPI) from a peak of 13.3% y-o-y in March to 3.9% in August. Another
factor that should help to contain domestic price pressures is the subdued global
inflation outlook, especially in advanced economies.
CPI inflation
forecast largely
unchanged at 6.3
and 5.6% for ’14
and ’15
Taking these factors into consideration, our CPI inflation forecast is largely
unchanged from June. Consumer inflation is projected to average 6.3% in 2015
and to fall back to within the 3 to 6% target range in 2015Q1. Price pressures
are expected to moderate to 5.6% in 2015 and 2016. The lower oil and food
prices may have a more immediate positive impact on producer prices. This is
reflected in a downward adjustment to our PPI forecast (7.7% versus 8.3% in
June) for 2014. The PPI is expected to moderate to an average of 6 and 5.7%
respectively in 2015 and 2016.
Risks to the inflation forecast
We concur with the latest SARB prognosis that the inflation risks are largely on
the upside. In particular, further (unexpected) rand weakness and wage
increases that are not accompanied by productivity gains pose the biggest
threat.
MPC views
further rate hikes
as necessary
Further interest rate hikes on the cards
As expected, the SARB’s Monetary Policy Committee (MPC) paused its rate hiking
cycle in September by keeping the repo policy interest rate on hold at 5.75%
(prime lending rate at 9.25%). However, there are clear indications that after
the cumulative 75bps rate hikes in January and July, further increases are likely.
The second last paragraph of the statement that accompanied the September
interest rate decision reads that: “The MPC is still of the view that interest rates
will have to normalise over time.”
Whereas the possibility of further increases is not up for debate, the uncertainty
relates to the timing and magnitude of any additional rate hikes. The major point
15
of contention seems to be whether the SARB should pre-empt potential US
interest rate increases by hiking the repo rate in the lead-up to Fed hikes or
pause until the Fed starts its own interest rate normalisation process. There are
of course pros and cons to both strategies. A snapshot is provided in table 3.
Table 3: MPC interest rate scorecard
Pre-empt Fed moves Wait for the Fed
Pros
Confirm inflation-fighting credentials Buys time for confidence levels and GDP growth to recover
Support the rand exchange rate
Removes risk of severe selling pressure on local assets once Fed starts hiking
Cons
Premature hikes may be detrimental to domestic growth
Low real interest rate and twin déficits expose SA to large capital outflows once Fed tightening starts
SARB credibility compromised if seen accomodating high wage increases and currency weakness
Source: BER
Pre-emptive rate
hikes potentially
more prudent
Our reading of the situation is that the SARB potentially has more to gain by
lifting the repo rate somewhat higher before US rate hikes commence. By
employing this tactic, the SARB avoids potentially being forced into more
aggressive hikes later if, for example, we see significant foreign selling of
domestic assets in the wake of higher US interest rates. Furthermore, given the
low level of SA interest rates and the other more important constraints on
growth, it could be argued that activity levels will not be (overly) adversely
impacted by a moderate interest rate hiking cycle.
25bps November
hike set to be
followed by
+50bps in
2015H1
For these reasons, our baseline forecast is for a 25bps repo rate increase at the
November MPC meeting. Thereafter, the rate is forecast to be raised by another
50bps in the first half of 2015. What happens then will largely depend on how US
monetary policy and SA inflation/growth develops. At this stage, we have
pencilled in another 50bps increase in the early stages of 2016. This will raise
the repo rate to 7% by the end of 2016, 2% higher than at the start of 2014.
Risks to the interest rate outlook
Given the SARB’s subdued growth outlook and projected moderation in price
pressures over the next 12 to 18 months, it seems unlikely that the central bank
will be more aggressive in hiking interest rates than our current forecast
suggests. However, should US policy normalisation start earlier than anticipated,
the concomitant capital outflow and associated rand depreciation could prompt a
larger and more immediate response from the SARB.
16
Overall consumer spending may have bottomed
The growth in real consumer spending slowed further to 2% y-o-y in the first
half of 2014, from 2.6% recorded in 2013. Similarly, the growth in retail sales
volumes slowed from 4.7% y-o-y during 2012 to 2.7% in 2013 and averaged
2.1% y-o-y during the first seven months of 2014. While the data so far in 2014
is not encouraging, developments in Q3 suggest that spending growth may have
bottomed in 2014Q2, at least in terms of the q-o-q momentum.
Number of more
supportive
consumer
developments
The petrol price dropped notably in September/October 2014, inflation is
expected to moderate and employment growth is forecast to recover (albeit
modestly) on the back of better global and domestic economic growth. These
factors should support an uptick in real disposable income growth from current
lows and can help explain the improvement in retailer business confidence during
2014Q3 (figure 8). Although the FNB/BER consumer confidence index (CCI)
slipped back to a level of -1 in 2014Q3 from a surprisingly strong +4 in 2014Q2,
it remained above earlier lows. This is heartening and points to an improved
willingness among consumers to spend relative to the same time a year ago.
Figure 8: Confidence indicators point towards consumer improvement
Source: E&Y, FNB, BER
Debt to
disposable
income ratio
coming down
While those consumers that were heavily exposed to unsecured lending are
clearly struggling, overall consumer debt dynamics have improved. The
household debt to disposable income ratio peaked at 82.4% in 2008. The ratio
came down to 73.5% in 2014Q2. This suggests that especially the high-income
consumers must have deleveraged quite a bit in recent years. Indeed, data from
the National Credit Regulator shows that a rising proportion of consumers are up
to date with their mortgage and other secured debt repayments. For unsecured
credit, the ratio is moving in the wrong direction. Excluding the unsecured credit
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17
problems, these more positive developments indicate that the consumer
environment is perhaps not as dire as may be generally assumed. Of most
importance is that when talking about the consumer, one should distinguish
between the trends for the low and high income earners as their situations may
be quite different.
Inflation
moderation and
job gains should
boost non-
durables in ’15
The divergence is reflected in the performance of the main consumer spending
categories (figure 9). Soaring transport and food costs, muted employment
growth and a substantial slowdown in the growth in social grants expenditure
have seen the growth in non-durable goods sales volumes brake notably.
Volume growth moderated from 2.7% y-o-y in 2012 to 2.2% in 2013 and
slumped to only 0.4% y-o-y in 2014H1. Petrol and electricity sales volumes in
particular have come under severe pressure from record high fuel and electricity
prices. While non-durable goods sales volumes will likely remain depressed
during 2014H2, the end of the platinum and engineering sector strikes and lower
petrol prices should alleviate some of the downward pressure on this category in
coming months. Volume growth is expected to improve from 0.7% y-o-y in 2014
to 2.5% during 2015 and 2.7% in 2016.
Figure 9: Non-durable sales volume growth ground to a halt in 2014H1
Source: SA Reserve Bank
Higher interest
rates and weaker
rand detrimental
for durable
retailers
The real growth in durable goods sales volumes continued to ease in 2014H1,
but at 6.4% y-o-y remained at a fairly brisk pace. Annual growth is forecast to
moderate further in the rest of 2014. This is against the backdrop of rising
interest rates and a weak exchange rate. The soft currency is putting upward
pressure on the prices of goods with a high import content, such as new
vehicles, electronics, toys and clothing and footwear. This is likely to also be the
case for semi-durable goods. Growth in both these categories is set to pick up
again later in 2015 and going into 2016 (see table 4 below for details).
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18
Services boosted
by consumers
spending more
abroad
The growth in real consumer spending on services slowed substantially over the
last two years, from 3.6% in 2011 to 1.7% in 2012 and a mere 0.3% in 2013.
While consumer spending on most services categories moderated (in line with
the deceleration in income growth), the underperformance of the services
category in general can mainly be ascribed to a large contraction in spending by
South Africans visiting abroad. This is captured under the "miscellaneous
services" category and contracted by 5.1% in 2012 and 5.4% in 2013. The sharp
decline in this category shaved nearly a percentage point off the growth in total
consumption expenditure over the last two years. However, spending by South
Africans abroad has now started to recover, while services categories such as
rent, household services (e.g. beauty salons, hairdressers and domestic
servants) and transport and communication services are expected to derive
some benefit from the projected employment recovery, as well as an easing in
petrol inflation. The growth in real consumer spending on services is therefore
projected to recover from a four-year low of 0.3% in 2013 to (a still subdued)
1.6% in 2014, before accelerating more meaningfully back towards 3% in 2015
and 2016.
Overall consumer
spending of 3
and 3.5%
expected in
‘15/’16
Given its relatively larger share in overall consumer spending, the expected
recovery in non-durable sales volumes and spending on services is set to
outweigh an expected further moderation in durable and semi-durable goods
sales during 2015. In 2016, all the major spending categories are set for faster
growth.
Table 4: Outlook for real consumer spending
y-o-y % change 2013 2014 2015 2016
Durable goods 7.9 4.5 3.8 4.9
Semi-durable goods 6.7 4.4 4.3 5.0
Non-durable goods 2.2 0.7 2.5 2.7
Services 0.3 1.6 2.8 3.2
Total 2.6 2.0 3.0 3.5
Source: SARB, BER forecast
Risks to the consumer spending outlook
We remain concerned about the prospects for large-scale private sector job
losses in an environment of slow growth and tense labour relations, while
strained government finances will likely limit prospects for job creation in the
public sector. Weaker employment outcomes will be detrimental to disposable
income growth. Because of the current low level of the prime interest rate, we
assume that a moderate interest rate hiking cycle will not have a major negative
impact on the consumer. However, a more aggressive hiking cycle will be
particularly damaging to highly indebted middle and lower-income households.
19
Private investment struggle continues
The growth rate in total fixed investment (FI) slowed to 3.9% y-o-y in the first
half of 2014, down from 4.7% during 2013. The growth moderation was driven
by the private sector and public corporations (mainly Eskom and Transnet). On
the other hand, the growth in general government capital outlays accelerated
significantly.
Private sector FI
growth continues
to underperform
Figure 10 provides an overview of the performance of the major fixed investment
categories since the peak of the previous business cycle upswing in December
2007. It includes the 2009 recession and the subsequent recovery. As
highlighted in previous editions of Economic Prospects, what stands out is the
robust (initial) performance of public corporations. On the other hand, the
growth in private sector and general government FI outlays has been
disappointing.
Figure 10: Very weak residential investment weighs on private sector outlays
Source: SA Reserve Bank, BER
Government FI
growth
accelerated in
2014H1
The more recent trends are quite different, although the private sector continued
to underperform. After increasing by a modest 3.5% in 2013, government FI
growth accelerated to 7.1% y-o-y in the first half of 2014. According to the SARB
Quarterly Bulletin, government expenditure in 2014Q2 was focused on water
supply and treatment facilities, while the building and refurbishing of schools,
hospitals and other healthcare facilities also boosted the numbers. The year to
date performance exceeded our expectations, prompting an upward revision to
the government FI forecast for 2014 (6% versus 5.4% expected in June).
However, there are questions about whether the recent strong momentum can
be maintained through 2016. Besides well published capacity constraints at local
government level, finances may also be an issue. In order to stick to budgeted
expenditure figures, capital expenditures may have to be scaled back if
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20
government is unable to reach a reasonable wage increase deal with public
sector workers.
Power station
delays set to
weigh on public
corps FI
The growth in public corporation FI eased further to 1.7% y-o-y in the first
half of 2014, down from around 3% in 2013. Measured q-o-q, FI declined slightly
in 2014Q2. The SARB mentioned that Eskom reduced spending on construction
works at ongoing projects, while Transnet’s outlays on locomotives and wagons
were tapered. Eskom continues to face the potential of delays in the completion
of its coal-fired power stations (Medupi and Kusile). This exacerbates the
company’s financial difficulties as it has been incurring extra costs to keep the
lights on by excessively running the more expensive open-cycle gas turbines.
Eskom is not generating sufficient revenue to offset the cost of electricity supply.
In reaction to these difficulties and the threat of Eskom losing its investment
grade credit rating, government announced a support package in September.
This entails the following:
Government support for higher electricity tariffs. Subsequent to the
announcement, Nersa granted Eskom a 12.7% electricity tariff increase
for 2015.
An equity injection that will be used to alleviate the impact of the tariff
hike on consumers and to strengthen Eskom’s balance sheet
Additional debt of R50bn will be raised.
From a financial point of view, these initiatives will hopefully prevent further
delays. However, there are no guarantees and industry experts are a lot less
optimistic on the completion dates of the power stations than Eskom’s latest
timeline.
Transnet’s rail expansion drive is set to boost public corporation FI, but we have
nevertheless downgraded the forecast. Public corporation FI is forecast to grow
by around 2.5% in 2014, before accelerating to 3.5 and 4.6% in 2015 and 2016.
Mining and
residential sector
woes depress
private sector FI
outlays
Private sector fixed investment (PSFI) posted a small q-o-q decline in
2014Q2. This pushed the y-o-y growth rate down to 2.7% from 5% in 2014Q1
and 5.5% during 2013. With the exception of the manufacturing sector, most
private sector industries reported weaker FI numbers in Q2. In particular, the
strike-affected platinum mining sector experienced significantly weaker capital
investment. Another notable area of weakness remains the residential sector.
Figure 10 highlights that if residential FI is excluded, the recovery in PSFI since
the recession is noticeably faster, albeit still not particularly robust. Based on the
BER’s latest building sector survey, there may be some light at the end of the
residential tunnel. Residential building contractor confidence rose to 58 index
points in 2014Q3, the highest level since 2008Q1. However, on a y-o-y basis,
21
residential FI should continue to contract in the second half of 2014 with positive
annual growth numbers only forecast from 2015.
Constrained local
environment
argues against
strong private FI
recovery
Besides some recovery in the residential sector, mining FI should also show an
improvement in the latter stages of 2014 as the platinum mines return to full
production. However, despite some pockets of strength, the broader business
landscape in SA is not conducive to strong PSFI. A subdued GDP growth outlook,
lack of capacity constraints, anti-business government policy proposals and
subsequent low business confidence levels argue against a sudden spurt of
private sector capital outlays. The weaker than expected 2014Q2 numbers have
forced a downgrade to our 2014 PSFI growth forecast to just above 2% from 3%
expected in June. A recovery towards 3.5% (2015) and 4% (2016) is expected
in the following years.
In total, the fixed investment forecast has been downscaled by about 0.5
percentage points to 2.9 and 3.4% respectively for 2014 and 2015. A recovery
to growth of just over 4% is projected for 2016.
Global shocks
and unfriendly
policy key FI risk
factors
Risks to the fixed investment outlook
On the residential FI front, a more aggressive than expected interest rate hiking
cycle may derail the expected recovery in 2015. In a broader sense, any further
shock to business confidence may result in even weaker than forecast PSFI. This
could take the form of renewed global economic weakness or the acceptance of
anti-business domestic policy proposals. Regarding public sector FI, financing
difficulties and the capacity to meet timelines provide the most important
downside risk.
Summary – GDP growth outlook
remains constrained
Technical bounce
to lift GDP
growth to 2.9%
in ’15
After a projected meagre 1.4% in 2014, GDP growth is forecast to improve to
2.9% in 2015. This largely reflects a technical bounce from the strike-induced
weakness during 2014. In particular, as mining output returns to normal levels,
inventories should rebound back to positive territory. Private sector fixed
investment and exports were also constrained by the 2014 strikes – we expect
an improved performance in 2015. It is a similar story for household
consumption.
The fact that an institution such as the IMF only expects 2.3% GDP growth in
2015 suggests some downside risks to our forecast. However, there is also some
upside potential. Inventories are one area where we are conservative in terms of
the bounce back. All else being equal, if we simply assume that inventories
22
recover all the ground lost in 2014, GDP growth could be 3.3% next year. A
somewhat improved global growth performance and sustained rand weakness
suggest that there may also be some upside potential for exports. However, as
outlined earlier, the uncertain Chinese growth outlook and potential for sustained
lower commodity prices caution against an over-optimistic export view.
Growth unlikely
to rise beyond
3% in ’16
Whereas growth in 2015 will largely be a recovery story, 2016 presents greater
uncertainty. By then, the domestic business environment will have to be
conducive to foster a further growth acceleration. This means improved business
confidence, higher disposable income growth and private sector fixed
investment. At this stage, we simply do not have sufficient evidence to make the
case for such a scenario. As such, GDP growth is forecast to stabilise around the
3% mark in 2016.
Figure 11: GDP growth of above 3% unlikely anytime soon
Source: SARB, BER forecast
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23
Addendum
Statistics of the quarterly forecast, 2014 -2016
Table A 1: International economic indicators .................................................................................... 24
Table A 2: Expenditure on gross domestic product at current prices (R billion) ..................................... 25
Table A 3: Expenditure on gross domestic product at constant prices (R billion, 2005 prices) ................. 26
Table A 4: Final household consumption expenditure, at constant prices (R billion, 2005 prices) ............. 27
Table A 5: Gross fixed capital formation at constant prices (R billion, 2005 prices) ............................... 28
Table A 6: Personal income and expenditure at current prices (R billion) ............................................. 29
Table A 7: Balance of payments at current prices (R billion) ............................................................... 30
Table A 8: Interest rates, price indices and exchange rates (quarterly averages) .................................. 31
Table A 1: International economic indicators
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Real GDP Growth Rates
US % growth 1.9 2.5 2.2 2.0 3.2 2.9 2.9 2.7 2.8 2.9 2.8 2.9 2.1 2.9 2.8
UK % growth 3.0 3.2 2.9 2.8 2.7 2.5 2.7 2.9 2.7 2.4 2.1 1.9 3.0 2.7 2.3
Germany % growth 2.2 1.3 1.4 1.5 1.3 2.0 2.2 2.3 2.0 1.7 1.5 1.4 1.6 2.0 1.6
Japan % growth 2.7 0.0 0.5 1.2 -0.1 2.1 1.6 1.0 1.2 1.1 1.0 1.2 1.1 1.2 1.1
G7 % growth 1.8 1.7 1.6 1.7 2.0 2.3 2.4 2.2 2.2 2.2 2.0 2.2 1.7 2.2 2.1
CPI Inflation Rates
US % CPI 1.4 2.0 2.0 2.2 2.2 1.9 1.9 2.3 2.3 2.2 2.2 2.0 1.9 2.1 2.2
UK % CPI 1.8 1.7 1.6 1.9 2.1 1.9 2.3 1.9 2.0 1.9 2.0 1.9 1.7 2.1 2.0
Germany % CPI 1.1 1.0 1.1 1.1 1.1 1.6 1.4 1.9 1.9 1.7 1.6 1.5 1.1 1.5 1.6
Japan % CPI 1.5 3.6 2.7 2.9 3.3 1.5 2.1 2.6 2.4 2.4 2.5 2.0 2.7 2.4 2.3
Euro-Area % CPI 0.7 0.6 0.6 0.7 1.3 0.8 1.3 1.0 1.3 1.2 1.2 1.4 0.6 1.1 1.3
G7 % CPI 1.3 2.0 1.6 2.1 2.0 1.3 1.9 2.2 2.1 2.0 2.1 1.9 1.7 1.8 2.0
Commodity Prices
Spot oil price : $/barrel 108.2 109.5 103.7 103.0 104.0 105.0 103.0 105.0 104.0 105.0 106.0 105.0 106.1 104.3 105.0
Ind. comm. price % change -10.2 -2.6 1.5 -0.3 2.5 3.7 3.4 5.5 4.7 5.3 4.6 3.9 -3.1 3.8 4.6
London gold price : US$/oz 1293.4 1288.6 1291.9 1225.0 1220.0 1220.0 1215.0 1195.0 1195.0 1185.0 1180.0 1180.0 1274.7 1212.5 1185.0
London gold price : R/oz 14050.8 13589.3 13824.6 13413.8 13420.0 13481.0 13486.5 13360.1 13384.0 13319.4 13334.0 13475.6 13719.6 13436.9 13378.3
Exchange Rates
US$/Sterling exchange rate 1.65 1.68 1.68 1.65 1.66 1.64 1.63 1.63 1.62 1.62 1.63 1.62 1.67 1.64 1.62
YN/$ exchange rate 102.8 102.1 103.2 107.0 108.0 108.0 107.0 108.5 108.0 109.0 110.0 110.0 103.8 107.9 109.3
US$/Euro exchange rate 1.37 1.37 1.33 1.29 1.28 1.26 1.24 1.23 1.25 1.24 1.25 1.25 1.34 1.25 1.25
24
Table A 2: Expenditure on gross domestic product at current prices (R billion)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Household consumption 2147.4 2198.2 2250.0 2290.8 2326.2 2381.9 2448.7 2490.3 2535.5 2596.8 2662.9 2708.2 2221.6 2411.8 2625.8
(year % ch.) 7.2 8.0 8.3 8.4 8.3 8.4 8.8 8.7 9.0 9.0 8.7 8.7 8.0 8.6 8.9
Government consumption 772.2 802.9 837.9 857.8 838.4 870.8 913.9 936.4 938.1 941.8 976.2 1008.2 817.7 889.9 966.1
(year % ch.) 9.8 8.0 9.0 7.8 8.6 8.5 9.1 9.2 11.9 8.2 6.8 7.7 8.6 8.8 8.6
Fixed capital formation 700.8 712.8 725.2 740.6 760.3 774.1 791.2 809.4 829.3 845.9 866.9 889.0 719.8 783.8 857.8
(year % ch.) 11.6 10.8 8.6 9.1 8.5 8.6 9.1 9.3 9.1 9.3 9.6 9.8 10.0 8.9 9.4
Inventory investment -19.8 -19.0 -14.7 0.5 1.7 3.6 2.5 5.1 11.5 11.7 11.9 12.7 -13.2 3.2 11.9
Residual item 54.6 -10.9 -10.9 -10.9 -10.9 -10.9 -10.9 -10.9 -10.9 -10.9 -10.9 -10.9 5.5 -10.9 -10.9
Gross domestic expenditure 3655.2 3684.0 3787.4 3878.7 3915.7 4019.5 4145.4 4230.3 4303.4 4385.2 4506.9 4607.1 3751.3 4077.7 4450.7
(year % ch.) 7.6 6.5 7.8 9.1 7.1 9.1 9.5 9.1 9.9 9.1 8.7 8.9 7.8 8.7 9.1
Exports: goods and services 1163.5 1115.1 1174.6 1230.4 1247.5 1287.5 1319.4 1347.0 1371.3 1424.7 1476.9 1525.7 1170.9 1300.4 1449.7
(year % ch.) 16.5 8.2 8.0 11.8 7.2 15.5 12.3 9.5 9.9 10.7 11.9 13.3 11.1 11.1 11.5
Imports: goods and services 1257.1 1228.8 1295.9 1340.1 1368.8 1392.7 1437.7 1476.5 1507.4 1543.3 1588.9 1634.8 1280.5 1418.9 1568.6
(year % ch.) 15.0 7.7 7.9 15.2 8.9 13.3 10.9 10.2 10.1 10.8 10.5 10.7 11.4 10.8 10.5
Expenditure of GDP 3561.7 3570.2 3666.1 3769.0 3794.4 3914.3 4027.1 4100.9 4167.3 4266.6 4395.0 4498.0 3641.8 3959.2 4331.7
(year % ch.) 7.9 6.6 7.9 7.9 6.5 9.6 9.8 8.8 9.8 9.0 9.1 9.7 7.6 8.7 9.4
25
Table A 3: Expenditure on gross domestic product at constant prices (R billion, 2005 prices)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Household consumption 1341.5 1346.4 1353.4 1362.8 1373.8 1385.8 1397.9 1410.1 1422.1 1434.0 1446.2 1458.3 1351.0 1391.9 1440.1
(year % ch.) 2.1 1.9 1.8 2.0 2.4 2.9 3.3 3.5 3.5 3.5 3.5 3.4 2.0 3.0 3.5
Government consumption 428.5 430.2 432.8 436.0 437.9 440.1 442.9 446.3 447.9 449.6 452.3 455.7 431.9 441.8 451.4
(year % ch.) 1.6 1.6 1.9 2.1 2.2 2.3 2.3 2.4 2.3 2.2 2.1 2.1 1.8 2.3 2.2
Fixed capital formation 416.7 417.2 418.6 422.0 427.6 430.2 434.2 438.8 444.0 447.4 452.7 458.5 418.6 432.7 450.7
(year % ch.) 4.5 3.2 1.9 1.9 2.6 3.1 3.7 4.0 3.8 4.0 4.2 4.5 2.9 3.4 4.1
Inventory investment -14.4 -12.3 -8.2 0.6 0.7 1.4 0.3 1.6 4.9 4.8 4.4 4.5 -8.6 1.0 4.7
Residual item -27.8 -27.2 -27.2 -27.2 -27.2 -27.2 -27.2 -27.2 -27.2 -27.2 -27.2 -27.2 -27.3 -27.2 -27.2
Gross domestic expenditure 2144.6 2154.3 2169.3 2194.3 2212.9 2230.2 2248.1 2269.6 2291.8 2308.7 2328.4 2349.8 2165.6 2240.2 2319.7
(year % ch.) 0.3 0.0 0.9 3.0 3.2 3.5 3.6 3.4 3.6 3.5 3.6 3.5 1.0 3.4 3.5
Exports: goods and services 513.5 498.1 509.6 526.5 527.2 541.0 549.9 553.9 554.3 565.1 576.0 584.0 511.9 543.0 569.9
(year % ch.) 8.6 3.1 1.5 3.9 2.7 8.6 7.9 5.2 5.1 4.5 4.7 5.4 4.2 6.1 4.9
Imports: goods and services 647.9 639.2 658.7 676.0 684.2 696.6 708.4 717.0 725.5 737.7 752.2 766.0 655.5 701.5 745.4
(year % ch.) 2.0 -1.1 0.2 8.4 5.6 9.0 7.5 6.1 6.0 5.9 6.2 6.8 2.3 7.0 6.2
Expenditure of GDP 2010.2 2013.2 2020.2 2044.8 2055.9 2074.6 2089.6 2106.5 2120.5 2136.1 2152.2 2167.9 2022.1 2081.7 2144.2
(year % ch.) 1.8 1.1 1.3 1.6 2.3 3.1 3.4 3.0 3.1 3.0 3.0 2.9 1.4 2.9 3.0
26
Table A 4: Final household consumption expenditure, at constant prices (R billion, 2005 prices)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Durable goods 167.2 167.8 168.5 169.6 171.5 173.7 175.8 177.9 180.1 182.1 184.3 186.4 168.3 174.7 183.2
(year % ch.) 7.8 5.0 3.1 2.1 2.6 3.5 4.4 4.9 5.0 4.8 4.8 4.8 4.5 3.8 4.9
Semi-durable goods 161.6 162.4 163.5 164.9 166.8 169.0 171.2 173.5 175.6 177.6 179.6 181.8 163.1 170.1 178.6
(year % ch.) 6.2 4.6 3.5 3.6 3.2 4.1 4.7 5.2 5.3 5.1 4.9 4.8 4.4 4.3 5.0
Non-durable goods 459.0 459.7 461.8 464.8 468.0 471.2 474.6 477.6 480.8 483.9 487.2 490.5 461.3 472.8 485.6
(year % ch.) 0.7 0.2 0.6 1.2 2.0 2.5 2.8 2.8 2.7 2.7 2.7 2.7 0.7 2.5 2.7
Services 553.8 556.5 559.6 563.5 567.6 571.8 576.3 581.0 585.7 590.4 595.1 599.6 558.4 574.2 592.7
(year % ch.) 0.5 1.5 2.0 2.3 2.5 2.8 3.0 3.1 3.2 3.2 3.3 3.2 1.6 2.8 3.2
Total household consumption 1341.5 1346.4 1353.4 1362.8 1373.8 1385.8 1397.9 1410.1 1422.1 1434.0 1446.2 1458.3 1351.0 1391.9 1440.1
(year % ch.) 2.1 1.9 1.8 2.0 2.4 2.9 3.3 3.5 3.5 3.5 3.5 3.4 2.0 3.0 3.5
Real disposable income 1340.1 1344.5 1351.0 1369.6 1375.4 1397.4 1392.9 1416.2 1422.8 1444.0 1443.8 1463.3 1351.3 1395.5 1443.5
(year % ch.) 2.0 1.7 1.7 2.6 2.6 3.9 3.1 3.4 3.4 3.3 3.7 3.3 2.0 3.3 3.4
27
Table A 5: Gross fixed capital formation at constant prices (R billion, 2005 prices)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Private fixed capital formation total 267.9 267.2 267.4 269.7 274.1 275.7 278.1 281.0 284.3 286.2 289.5 292.9 268.0 277.2 288.2
(year % ch.) 5.0 2.7 0.6 0.9 2.3 3.2 4.0 4.2 3.7 3.8 4.1 4.3 2.3 3.4 4.0
Public corporations fixed 85.1 84.9 85.9 86.7 87.6 87.8 89.1 90.0 91.1 91.8 93.1 94.6 85.7 88.6 92.7
capital formation (year % ch.) 1.8 1.6 2.7 3.4 3.0 3.4 3.7 3.9 4.1 4.5 4.6 5.1 2.4 3.5 4.6
Government fixed capital formation 63.7 65.1 65.3 65.6 65.9 66.6 67.1 67.8 68.5 69.4 70.1 71.0 64.9 66.8 69.8
(year % ch.) 6.3 7.9 5.9 4.1 3.4 2.3 2.7 3.3 4.1 4.3 4.5 4.7 6.0 2.9 4.4
Total fixed capital formation 416.7 417.2 418.6 422.0 427.6 430.2 434.2 438.8 444.0 447.4 452.7 458.5 418.6 432.7 450.7
(year % ch.) 4.5 3.2 1.9 1.9 2.6 3.1 3.7 4.0 3.8 4.0 4.2 4.5 2.9 3.4 4.1
28
Table A 6: Personal income and expenditure at current prices (R billion)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Remuneration of employees 1610.1 1675.5 1735.4 1768.3 1751.7 1829.8 1894.5 1931.1 1916.8 1997.3 2073.6 2117.5 1697.3 1851.8 2026.3
(year % ch.) 7.3 6.5 8.7 8.6 8.8 9.2 9.2 9.2 9.4 9.2 9.5 9.7 7.8 9.1 9.4
Income from property 672.0 668.6 658.0 615.8 731.8 728.7 718.6 673.1 795.4 792.1 781.1 732.4 653.6 713.1 775.3
(year % ch.) 5.4 12.0 8.0 13.5 8.9 9.0 9.2 9.3 8.7 8.7 8.7 8.8 9.6 9.1 8.7
Total net transfers to households 209.9 216.7 202.0 244.6 226.7 233.6 217.6 262.9 243.5 250.9 233.5 282.4 218.3 235.2 252.6
(year % ch.) 16.2 6.4 8.0 3.5 8.0 7.8 7.7 7.5 7.4 7.4 7.3 7.4 8.1 7.7 7.4
Current income 2492.0 2560.8 2595.5 2628.8 2710.2 2792.2 2830.7 2867.2 2955.8 3040.3 3088.2 3132.3 2569.3 2800.0 3054.1
(year % ch.) 7.5 7.9 8.5 9.2 8.8 9.0 9.1 9.1 9.1 8.9 9.1 9.2 8.3 9.0 9.1
Disposable income 2145.2 2195.1 2246.0 2302.1 2330.2 2403.3 2441.3 2502.6 2538.1 2616.3 2660.0 2719.0 2222.1 2419.3 2633.3
(year % ch.) 7.1 7.8 8.1 9.0 8.6 9.5 8.7 8.7 8.9 8.9 9.0 8.6 8.0 8.9 8.8
Less household consumption 2147.4 2198.2 2250.0 2290.8 2326.2 2381.9 2448.7 2490.3 2535.5 2596.8 2662.9 2708.2 2221.6 2411.8 2625.8
(year % ch.) 7.2 8.0 8.3 8.4 8.3 8.4 8.8 8.7 9.0 9.0 8.7 8.7 8.0 8.6 8.9
Saving -2.3 -3.1 -4.0 11.3 4.0 21.4 -7.4 12.3 2.6 19.6 -2.9 10.9 0.5 7.6 7.5
29
Table A 7: Balance of payments at current prices (R billion)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
Merchandise exports 966.7 904.5 946.7 1001.6 1021.4 1055.2 1081.9 1106.7 1128.1 1178.5 1225.6 1268.2 954.9 1066.3 1200.1
(year % ch.) 20.6 9.4 6.9 11.1 5.6 16.7 14.3 10.5 10.4 11.7 13.3 14.6 11.8 11.7 12.5
Plus net gold exports 50.8 59.3 71.1 69.0 62.6 67.2 69.4 68.7 66.7 64.2 64.3 65.0 62.6 67.0 65.1
(year % ch.) -24.7 -14.9 13.1 24.2 23.2 13.2 -2.4 -0.4 6.6 -4.4 -7.3 -5.4 -2.1 7.0 -2.8
Less merchandise imports 1092.2 1064.8 1125.4 1169.9 1197.9 1218.9 1261.7 1299.6 1329.6 1360.6 1402.5 1446.4 1113.1 1244.5 1384.8
(year % ch.) 16.1 8.3 8.3 16.8 9.7 14.5 12.1 11.1 11.0 11.6 11.2 11.3 12.3 11.8 11.3
Net service payments -58.1 -84.3 -87.2 -86.3 -87.3 -89.3 -92.2 -93.0 -87.3 -87.7 -89.5 -90.0 -79.0 -90.5 -88.6
Net transfers -28.2 -36.8 -30.0 -30.0 -30.0 -30.0 -30.0 -30.0 -30.0 -30.0 -30.0 -30.0 -31.2 -30.0 -30.0
Current account balance -161.0 -222.1 -224.9 -215.6 -231.3 -215.8 -232.7 -247.3 -252.2 -235.6 -232.1 -233.2 -205.9 -231.7 -238.3
Current account balance (NSA) -43.8 -53.3 -63.7 -45.1 -61.3 -51.7 -65.7 -53.0 -66.6 -56.6 -65.5 -49.5 -205.9 -231.7 -238.3
Net capital flows (NSA) 39.1 43.3 65.0 50.0 65.0 50.0 60.0 51.0 62.0 58.0 61.0 58.0 197.3 226.0 239.0
SDR + Valuation adjustment (NSA) 7.6 2.5 11.6 2.3 2.0 3.7 3.4 2.3 2.0 2.9 4.3 4.3 24.1 11.4 13.4
Change in gross reserves (NSA) 3.0 -7.4 12.9 7.2 5.7 2.0 -2.3 0.3 -2.6 4.2 -0.3 12.7 15.6 5.7 14.1
30
Table A 8: Interest rates, price indices and exchange rates (quarterly averages)
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2014 2015 2016
3-month BA rate 5.5 5.6 6.0 6.2 6.5 6.7 6.7 6.7 6.8 7.0 6.9 6.9 5.8 6.6 6.9
Prime overdraft rate 8.8 9.0 9.2 9.4 9.8 10.0 10.0 10.0 10.3 10.5 10.5 10.5 9.1 9.9 10.4
Petrol: R/litre (95 octane, coast) 13.58 13.81 13.70 13.45 13.74 14.02 13.92 14.08 14.07 14.34 14.50 14.53 13.63 13.94 14.36
(year % ch.) 12.7 12.1 4.9 5.1 1.2 1.6 1.6 4.7 2.4 2.3 4.2 3.2 8.6 2.2 3.0
Price deflator: GDE 165.7 169.4 172.9 175.1 175.3 178.5 182.7 184.7 186.1 188.2 191.8 194.3 170.8 180.3 190.1
(year % ch.) 5.5 6.7 6.7 6.3 5.8 5.4 5.6 5.5 6.1 5.4 5.0 5.2 6.3 5.6 5.4
Price deflator: Private consumption 160.1 163.3 166.3 168.1 169.4 172.0 175.3 176.7 178.4 181.2 184.2 185.8 164.4 173.3 182.4
(year % ch.) 5.0 6.0 6.3 6.2 5.8 5.3 5.4 5.1 5.3 5.4 5.1 5.2 5.9 5.4 5.2
Producer price index 169.2 185.8 191.9 188.6 179.9 196.1 203.4 200.1 190.3 207.2 214.8 211.6 183.9 194.9 206.0
(year % ch.) 7.6 8.5 7.5 7.2 6.3 5.5 6.0 6.1 5.8 5.7 5.6 5.7 7.7 6.0 5.7
Headline inflation (CPI) 168.6 171.9 174.2 175.4 178.5 181.5 183.8 185.1 188.3 191.4 194.2 195.6 172.5 182.2 192.4
(year % ch.) 5.9 6.5 6.3 6.3 5.9 5.6 5.5 5.5 5.5 5.4 5.7 5.7 6.3 5.6 5.6
R/$ exchange rate 10.87 10.54 10.70 10.95 11.00 11.05 11.10 11.18 11.20 11.24 11.30 11.42 10.76 11.08 11.29
R/STERLING exchange rate 17.99 17.74 17.93 18.07 18.26 18.12 18.09 18.22 18.14 18.21 18.42 18.50 17.93 18.17 18.32
R/YN100 exchange rate 10.58 10.32 10.37 10.23 10.19 10.23 10.37 10.30 10.37 10.31 10.27 10.38 10.37 10.27 10.33
R/EURO exchange rate 14.89 14.45 14.26 14.09 14.08 13.92 13.76 13.75 14.00 13.94 14.13 14.28 14.42 13.88 14.08
31
