Economic Trends: Key trends in the South African economy - IDC
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Economic Trends:
Key trends in the South African economy
29
31 March
March 2019
2015
Department of Research and Information
Contents
Overview 3 Exchange rates 17
The rand versus the US dollar and the euro
Gross domestic product 4 The rand versus other foreign currencies
Gross domestic product Effective exchange rates of the rand
GDP growth at sectoral level
Sectoral composition of the South African economy Balance of payments 18
Real GDP growth by economic sub-sector Trade balance
Trade performance per sector
Domestic expenditure 6 Current account of the balance of payments
Gross domestic expenditure Balance on financial account
Final consumption expenditure by households Total reserves and import cover
Final consumption expenditure by government Composition of the export basket
Gross fixed capital formation Imports according to broad category
Fixed investment by type of organisation
Key export destinations
Inventories
Commodities 21
Employment 8
Commodity prices
Formal and informal sector employment
Gold and platinum
Productivity and unit labour costs
Brent crude oil
Unemployment
Business cycle indicators 22
Manufacturing sector 10
Manufacturing GDP and volume of production SARB business cycle indicators
Physical volume of production per sub-sector of manufacturing BER business confidence indicators
Fixed investment and capacity utilisation BER/FNB confidence indicators
Utilisation of production capacity per sub-sector
Expectations regarding employment creation Miscellaneous indicators 23
Expectations regarding employment creation per sub-sector Retail trade sales
New vehicles sales and exports
Inflation and monetary aggregates 13 Building plans passed and buildings completed
Consumer price inflation Foreign direct investment
Producer price inflation Liquidations of companies
Credit extension to the private sector Petrol price and crude oil prices
Interest rates and yields 14 International indicators 25
Repo and prime overdraft rates World Gross
economicDomestic
climate index Product
Inflation and interest rates GDP growth in advanced economies
Long- and short-term yields • Conditions
GDP growth in emergingin economies
the South African economy remain
unsatisfactory.
Equity market performance
Capital markets 15 • The
Consumer pricerate of decline in consumer spending deteriorated to
inflation
Johannesburg Securities Exchange performance 5.8%
Interest rates in Q2 of 2009, its worst performance in almost 25
Shares traded on the JSE years.
Net portfolio purchases/sales by non-residents • of
Glossary Factors
termscontributing to poor consumer spending include
27
:
Government finance 16 – Increased job losses
Budget balance
– Falling real disposable incomes
Government debt
Government savings
Note: An * in a specific graph indicates % change at constant prices, at a seasonally adjusted and annualised rate.
2
Overview
The world economy has been facing strong headwinds. These include Of particular concern is the fact that, already five years into the
increased tension in the global trading arena as a result of US downturn, business confidence levels in the South African economy are
protectionism and retaliatory measures from the affected trade partners; not only low, but have declined in certain sectors. In the first quarter of
unfavorable developments in key European economies and continued 2019, confidence levels fell in four out of the five broad sectors
uncertainty surrounding Brexit; decelerating growth in China; the impact surveyed.
of monetary policy normalisation in some advanced economies; and,
among other factors, geo-political risks. Consequently, its expansion Overall fixed investment spending contracted by 1.4% in 2018. Difficult
momentum is decelerating. operating conditions and surplus production capacity saw the quantum
of investment outlays in the manufacturing sector fall over time, with the
World GDP growth eased marginally to 3.7% in 2018, from 3.8% in 2017, 2018 levels being 10% lower than in 2011. Consequently, the ratio of
and the International Monetary Fund is now forecasting growth of 3.5% fixed investment expenditure to overall GDP fell to 18.2% in 2018, the
and 3.6% for 2019 and 2020, respectively. lowest in 13 years.
The United States economy recorded growth of 2.9% in 2018 and is Nevertheless, employment levels have been rising gradually in recent
working at close to full employment. Activity levels were raised by higher years, with the South African economy having added 358 000 new jobs
household consumption and fixed investment expenditure, which were in 2018. However, the unemployment rate remains very high at 27.1%,
fueled by substantial tax reductions and higher fiscal spending. with more than 6.1 million people unable to find a job.
In the Eurozone, industrial production in Germany slowed as revised A downward trending leading business cycle indicator confirms the
emissions standards took a toll on its automotive industry. Weakening weak economic conditions, pointing to subdued growth in the months
consumer spending and export demand also affected the economy’s ahead. This, along with low confidence levels, does not bode well for a
performance in 2018. Italy’s large fiscal deficit and very high gross debt swift economic recovery.
ratios have raised sovereign and financial risks, leading to concerns of
potential spill-over effects to the remainder of the monetary bloc. Consumer spending is expected to remain subdued in 2019, but as
Domestic demand also slowed, with the Italian economy falling back into confidence levels improve and disposable incomes rise, household
recession in the final quarter of 2018. consumption expenditure should gain some momentum in subsequent
years. A fairly favourable inflation trajectory and relatively low interest
The pace of economic expansion in China continued to slow, but rates should also support gradually higher rates of increase in
remained robust at 6.6% in 2018, compared to 6.9% in 2017. The household spending.
structural changes under way in the Chinese economy contributed to the
growth moderation. In addition, softer global demand, the impact of The economy’s weak performance and challenges in tax collection are
higher US tariffs on the country’s exports, coupled with deleveraging impacting on government revenue and constraining its fiscal space.
efforts, weakening domestic demand and lower growth in industrial With limited room for a meaningful reduction in government spending,
output also affected economic activity in 2018. And the budget deficit will remain high as a ratio of GDP. The government
debt-to-GDP ratio, in turn, is projected by National Treasury to reach
Global equity markets were under pressure during 2018, with many the 60% mark by fiscal year 2023/24.
closing the year at lower levels. However, several have since rebounded,
stimulated by the US Federal Reserve’s more dovish monetary policy The credit ratings agencies have expressed concerns regarding the
stance and expectations of a negotiated trade settlement between the US unfavourable fiscal developments, the financial difficulties faced by key
and China. state-owned-enterprises and, among other factors, the economy’s
weak growth prospects. The latter have recently taken a heavy blow
The US Federal Reserve is expected to pause its monetary policy from resumed and widespread load-shedding due to technical and
tightening for a while in order to assess the impact of policy rate hikes, other operational challenges at Eskom.
which totaled 100 basis points in 2018. Cognisant of fragile economic
growth in the Eurozone, the European Central Bank has adopted a very It is hoped that various presidential initiatives such as the Economic
cautious monetary policy normalisation process. Although it terminated Stimulus and Recovery Plan, the Presidential Jobs Summit, the South
its net asset purchases in December 2018, it has refrained from starting Africa Investment Conference 2018 and other confidence-building
an interest rate hiking cycle. Gross
commitments made Domestic Productin his State of the Nation
by President Ramaphosa
Address will bolster private sector investment going forward. These
Foreign direct investment (FDI) flows across the world fell by 19% in commitments include greater
• Conditions policySouth
in the certainty and coherence,
African economya stern
remain
2018 to an estimated USD1.2 trillion, according to UNCTAD. Flows to fight against unsatisfactory.
corruption and major reforms in the state-owned-enterprise
developed economies dropped by 40%, mainly due to a sharp 73% sector. If the outcomes become increasingly visible, this will lead to a
decline in Europe. In contrast, FDI flows to developing economies The rateand
• business
revival in of decline
investorinconfidence,
consumer spending deteriorated
in turn translating into to
increased by 3.1%, with a 5.8% rise for Africa. According to UNCTAD, increased investment
5.8% in Q2 activity and employment
of 2009, creation.
its worst performance in almost 25
Africa could see a rise in FDI inflows in 2019, underpinned by greenfield years.
projects targeting the manufacturing sector, commodity price stabilisation Political developments in the first half of 2019 will be a key determinant
and regional integration efforts. of the economy’s
• Factors trajectory. Based to
contributing on poor
the assumption
consumerofspending
an investment-
include
and growth-supportive
: outcome of the national elections, GDP growth
The South African economy was under considerable strain in 2018, as is forecast to rise to 1.6% in 2019. However, the downside risks to this
evidenced by the 0.8% increase in its GDP in real terms. The generalised growth outlook are– onIncreased job losses the negative impacts of
the rise, considering
weakness was clear across all of its broad sectors and among the widespread and continued interruptions in electricity supply, fiscal
various drivers of domestic demand. – Falling
challenges and a slowing worldreal disposable incomes
economy.
3Gross domestic product
Gross domestic product
Gross Domestic Product (GDP) • South Africa’s economy entered a technical recession in the
8 first half of 2018 and, despite a rebound in the subsequent two
quarters, GDP growth came to just 0.8% for 2018 as a whole.
6
• Economic activity was characterised by general weakness
4 across all broad sectors. Negative growth in agricultural
output in 2018 was mainly due to the high base set in 2017,
% Change (q-o-q) *
2
when the maize crop was one of the largest on record.
0
• Mining output fell by 1.7% in 2018, with policy uncertainty,
-2
weaker global demand and lower commodity prices having
been a drag on the sectors’ performance. Excluding gold,
-4 mining output would have recorded modest growth.
-6 • Although manufacturing output rose marginally (+1%) in 2018,
the sector continues to face a difficult operating environment.
-8
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
This is characterised by weak domestic demand, import
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | penetration, trying conditions in the global trading arena, and
Source: IDC, compiled using Stas SA data
other operational challenges such as cost pressures.
GDP growth at sectoral level
Real GDP growth by main economic sector
Total GDP
2018 2017
Personal services (6.0)
Government (16.7)
Total GDP (at market prices) in
Finance (22.4) 2018 = R4 874 billion
Transport (9.6)
Trade (15.1)
Construction (3.8)
Electricity (2.3)
Gross Domestic Product
Manufacturing (13.5)
• Conditions in the South African economy remain
unsatisfactory.
Mining (8.1)
• The rate of decline in consumer spending deteriorated to
Agriculture (2.6) 5.8% in Q2 of 2009, its worst performance in almost 25
years.
-10 -5 0 5 10 15 20 25
• Factors contributing to poor consumer spending include
% Change
Source: IDC, compiled using Stats SA data :
– Increased job losses
Notes:
(i) Figures in brackets in the above graph refer to the sector’s percentage share of total GDP at basic prices (constant 2010 real
– Falling prices) in 2018 incomes
disposable
4Gross domestic product (cont.)
Sectoral composition of the South African economy in 2018
Agriculture,
forestry and
fishing Mining and
General government 2.4% quarrying
services 8.1%
18.1%
Manufacturing
Personal 13.2%
services
5.9% Electricity,
gas and water
3.8%
Construction
3.9%
Finance, real estate
and business Trade, catering and
services accommodation
19.7% 15.0%
Transport, storage
and communication
9.8%
Source: IDC, compiled using Stats SA data Note: Sector share according to GDP at basic prices (current prices)
Real GDP growth in service-related sectors Real GDP growth in the manufacturing sector
6 15
Services sectors include:
Electricity, Construction, Trade,
5 Transport, Finance, Government
and Other services.
10
4
% Change (q-o-q)*
% Change (q-o-q)*
3
5
2
0
1
0
-5
-1
-2 -10
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using Stats SA data Source: IDC, compiled using Stats SA data
Real GDP growth in the agricultural sector
40
Real GDP growth in the mining sector
60 Gross Domestic Product
50
30 • Conditions in the South African economy remain
40
unsatisfactory.
20 30
• The rate of decline in consumer spending deteriorated to
% Change (q-o-q)*
% Change (q-o-q)*
20
5.8% in Q2 of 2009, its worst performance in almost 25
10 10 years.
0
0 • Factors contributing to poor consumer spending include
-10
:
-10 -20
– Increased job losses
-30
-20
-40 – Falling real disposable incomes
-30 -50
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using Stats SA data Source: IDC, compiled using Stats SA data
5Domestic expenditure
Gross domestic expenditure
• Domestic expenditure was under pressure during 2018, with
Gross Domestic Expenditure (GDE)
10 34 all components having recorded subdued rates of growth.
For the year as a whole, gross domestic expenditure (GDE)
8 33
increased by only 1%, down from 1.9% in 2017.
6 32
• Inventory levels fell sharply in Q4 of 2018, thus contributing
4 31
to the economy’s poor growth performance not only in the
% Change (q-o-q) *
Imports: % of GDE
2 30 last quarter, but also for the entire year.
0 29 • Despite deteriorating economic conditions, import demand
-2 28 remained very strong as reflected by the increase in its
import intensity (i.e. real imports of goods and services as a
-4 27
% of GDE). By the third quarter of 2018, this ratio stood at
-6 26 31.4%, the highest in ten years.
GDE (% change)
-8
Imports as % of GDE
25 • A gradual recovery in domestic expenditure is, however,
-10 24 expected in 2019, potentially underpinned by modestly higher
Q2
2010
Q4
|
Q2
2011
Q4
|
Q2
2012
Q4
|
Q2
2013
Q4
|
Q2
2014
Q4
|
Q2
2015
Q4
|
Q2
2016
Q4
|
Q2
2017
Q4
|
Q2
2018
Q4
| rates of increase in household consumption and a recovery
Source: IDC, compiled using SARB, Stats SA data in fixed investment spending.
Final consumption expenditure by households
Final consumption expenditure by households
• Households remained under strain during the course of 2018.
10 90 Consequently, growth in household consumption spending
slowed to 1.8%, from 2.1% in 2017.
8 86
Debt-to-disposable income (%)
• Consumer spending was affected by rising inflation, a steep
6 82 rise in fuel prices to a new record high of R16.85 per litre by
October 2018 (although these declined in subsequent
% Change (q-o-q) *
4 78 months), a one percentage point increase in the VAT rate,
higher excise duties, subdued demand for new credit, as well
2 74 as lower growth in real disposable incomes.
• Although consumer spending on durable goods in general did
0 70
increase, expenditure on motor vehicles declined. This was
Consumer spending (Lhs) reflected by the 0.8% drop, year-on-year, in the number of
-2 66
Household debt as % of disposable income (Rhs)
new passenger vehicles sold in 2018.
-4
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
62 • Factors in support of an expected gradual recovery in
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
household spending include a relatively low interest rate
Source: IDC, compiled using SARB, Stats SA data
environment and a fairly favourable inflation trajectory.
Final consumption expenditure by government
Final consumption expenditure by government (FCEG) • Despite the limited fiscal space, real consumption expenditure
10 22.0 by general government expanded by 1.9% in 2018, compared
to the marginal 0.2% rise recorded in 2017. Consequently, the
8 21.5 share claimed by government in national GDP rose to 21.3%
in 2018, the highest on record.
6 21.0
% Change (q-o-q) *
• Government’s current expenditure is mostly directed towards
% Share of GDP
4 20.5 basic education, health, social protection and community
development.
2 20.0
• The public sector wage bill represented 35.1% of total
consolidated expenditure in the 2018/19 fiscal year and is
0 19.5
forecast to grow by 6.8% per year, on average, over the next
three years, thus outpacing the expected consumer price
-2 Government spending (Lhs) 19.0
inflation by quite a margin.
FCEG as % of GDP (Rhs)
-4
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
18.5 • Government remains committed to fiscal consolidation and
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
debt sustainability, with the principal credit rating agencies
keeping a close eye on the fiscal metrics.
Source: IDC, compiled using SARB, Stats SA data
6Domestic expenditure (cont.)
Gross fixed capital formation
Gross fixed capital formation (GFCF) • Fixed investment declined by 1.4% in real terms in 2018.
20 21.5 Weak demand conditions in the domestic market, spare
16 21.0 production capacity, infrastructure-related challenges, as well
as policy uncertainty in key sectors of the economy, affected
12 20.5 business confidence and investment decisions.
% Change (q-o-q) *
• Investment activity in the manufacturing sector has been
% Share of GDP
8 20.0
4 19.5 particularly weak in recent years, registering average annual
growth of -1.4% over the period 2012 to 2018. The overall
0 19.0 quantum of fixed investment in manufacturing in 2018 was, in
-4 18.5
real terms, 9.8% lower than in 2011 (the post-global financial
crisis high). In contrast, investment spending in the mining
-8 18.0 sector increased by 13.2% in 2018, following a sharp
-12
GFCF (% change)
17.5
rebound of 39.1% in 2017.
GFCF as % of GDP
-16 17.0
• Weak rates of expansion in fixed investment expenditure
Q2 Q4
2010 |
Q2 Q4
2011 |
Q2 Q4
2012 |
Q2 Q4
2013 |
Q2 Q4
2014 |
Q2 Q4
2015 |
Q2 Q4
2016 |
Q2 Q4
2017 |
Q2 Q4
2018 |
over recent years saw its relative share in overall GDP
Source: IDC, compiled using SARB, Stats SA data declining to a ratio of 18.2% in 2018, a 13-year low.
Fixed investment by type of organisation
Gross fixed capital formation • Fixed investment spending by the private sector increased by
40 2.1% in 2018. This was largely due to robust growth in
investment activity in the mining sector and, to a much lesser
30
extent, in the finance and business services sector. All other
20
broad sectors recorded lower investment outlays.
% Change (q-o-q) *
• Investment spending by public corporations fell by 12.5% in
10
2018, largely due to financial difficulties experienced by
0 several state-owned enterprises and reduced demand for
utility services such as electricity, transport and logistics.
-10 Fiscal constraints are limiting government’s ability to invest in
much needed economic and social infrastructure. Investment
-20
spending by government decreased by 4.4% in 2018 to
-30
Government Public corporations R98.7 billion (in real terms), the lowest level in four years.
Private sector Total investment
• A revival of business and investor confidence in the
-40
Q2
2010
Q4
|
Q2
2011
Q4
|
Q2
2012
Q4
|
Q2
2013
Q4
|
Q2
2014
Q4
|
Q2
2015
Q4
|
Q2
2016
Q4
|
Q2
2017
Q4
|
Q2
2018
Q4
|
economy’s prospects and visible improvements in the
Source: IDC, compiled using SARB, Stats SA data
operating environment are prerequisites for a recovery in
fixed investment activity.
Inventories
Change in inventory levels • Inventory levels dropped sharply by R53.9 billion in the final
18
Change in inventories (RHS)
100 quarter of 2018, one of the largest reductions on record. This
17 80 was caused by difficult operating conditions, with many
Industrial & commercial
inventories as % of GDP businesses having been forced to reduce sock levels.
16 60
• For the year as a whole, inventory levels were R5.4 billion
15 40
lower at constant 2010 prices. Key contributors were the
Rand Billion
14 20 mining sector, with a reduction of R16.9 billion, as well as the
% of GDP
13 0 transport, storage and communication sector (-R2.9 billion).
12 -20 • The trade, catering and accommodation sector, in turn,
reported an inventory accumulation amounting to R9.5 billion
11 -40
during 2018, whereas the manufacturing sector increased its
10 -60 stock levels by R5.1 billion.
9 -80
• Industrial and commercial inventories, as a ratio of GDP,
8 -100 declined to 10.2% in 2018, well below the 15.8% recorded in
2017.
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using SARB, Stats SA data
7Employment
Formal and informal sector employment
Employment in the formal and informal sector • Despite the challenging economic climate and the modest
800 GDP growth recorded in 2018, some 358 000 additional jobs
600 were collectively created in the formal and informal sectors of
the economy.
Change in number (y-o-y) in '000
400
• The bulk of the additional jobs were in the finance & business
200 services sector (+238 000), followed by the construction
0
(+91 000), trade (+79 000) and mining (+27 000) sectors. On
the other hand, substantial job losses were recorded in the
-200 community services sector (which includes government-
-400
related employment), followed by transport services and the
manufacturing sector.
-600
• Of concern is the declining employment intensity (i.e. number
-800 of jobs per R1 million of real GDP) of the economy over time.
Thus, a much faster pace of economic expansion would be
-1000
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 required in order to create more jobs, considering the large
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using Stats SA data number of new entrants into the labour market.
Productivity and unit labour costs
Labour productivity and unit labour costs • Labour productivity in the formal non-agricultural sectors of
12 the economy increased by only 0.7%, year-on-year, over the
Labour productivity
period January to September 2018. In contrast, nominal unit
10 Nominal unit labour costs
labour costs expanded at a much faster pace of 4.1% over
8 this period.
• Having increased at rates well above inflation for quite some
% Change (y-o-y)
6
time, growth in overall remuneration of employees slowed to
4 4.2% in 2018, from 7.4% in 2017.
2
• Compensation of employees within government increased by
7% in 2018, followed by the 4.8% for personal services.
0
• After increasing at a robust rate of 4.4% in real terms in 2017,
-2 average remuneration per employee in the public sector rose
by 1.6% in 2018. Similarly, the average growth in real
-4
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
remuneration per employee in the private sector came in at
2010 2011 2012 2013 2014 2015 2016 2017 2018 1.6% for 2018, following declines in real terms both in 2016
and 2017.
Source: IDC, compiled using SARB data
Unemployment
Unemployment rate • South Africa’s unemployment rate measured 27.1% by the
30
final quarter of 2018, with more than 6.1 million people unable
Latest data: Q4 2018
to find a job. Including discouraged job-seekers, the
28 unemployment rate stood at 37%, or 9.7 million unemployed
people.
26
• Amongst the youth, the unemployment rate stood at 54.7%
Percentage
for those in the age group 15 to 24 years, and at 33% for
24 those between the ages of 25 and 34 years.
• Government initiatives such as the extension of the
22 Employment Tax Incentive and the Youth Employment
Service scheme aim to address the unemployment challenge
20 amongst the youth. Other initiatives, such as the Presidential
Jobs Summit, the Economic Stimulus and Recovery package,
18
as well as the confidence-building South Africa Investment
Q2 Q4
2010 |
Q2 Q4
2011 |
Q2 Q4
2012 |
Q2 Q4
2013 |
Q2 Q4
2014 |
Q2 Q4
2015 |
Q2 Q4
2016 |
Q2 Q4
2017 |
Q2 Q4
2018 |
Conference should also contribute to job creation going
Source: IDC, compiled using Stats SA data forward.
8Employment (cont.)
Sectoral composition of employment in South Africa in 2018
Agriculture, forestry
Private
households Other & fishing
5.2% Mining
7.9% 0.06%
2.6% Manufacturing
Community, social & 10.8%
personal services Electricity,
22.5% gas & water
0.9%
Construction
9.0%
Trade, catering &
accommodation
Finance & business 20.0%
services Transport, storage &
15.1% communication
6.0% Note: Data is for the formal and informal sector as per data from the
Source: IDC, compiled using Stats SA data Quarterly Labour Force Survey (QLFS).
Employment according to main economic sector
Change in employment : Q4 2018 vs Q4 2017
Total employment
Finance & business services
Construction
Trade, catering & accommodation
Private households
Mining
Other industry
Agriculture, forestry & fishing
Electricity, gas & water
Manufacturing
Transport, storage & communication
Community, social & personal services
-100 -50 0 50 100 150 200 250 300 350 400
Change in number ('000)
Source: IDC, compiled using Stats SA data
9Manufacturing sector
Manufacturing GDP and volume of production
Manufacturing GDP and volume of production • The difficult economic environment domestically, rising
12 operational costs and increasingly challenging conditions in the
10
Volume of production (monthly)
global trading arena underscored the weak 1% growth in real
Manufacturing GDP (quarterly)
manufacturing GDP in 2018.
8
6 • Production volumes fell in several sub-sectors, including those
% Change (y-o-y)
producing TVs & radios (-9.8%), electrical machinery (-7.3%),
4
as well as textiles, clothing, leather and footwear (-2.6%).
2
• On the other hand, output levels increased by 4.6% in the
0
transport equipment sub-sector, followed by food and
-2 beverages (+4.6%), among others.
-4 • The manufacturing sector’s poor performance resulted in its
-6 relative share of overall GDP dropping to 13.2% in 2018.
-8 • Factors such as continued load-shedding, higher electricity
12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12
tariffs, weak domestic demand and rising global risks are likely
| 2010 | 2011
Source: IDC, compiled using Stats SA data
| 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
to constrain manufacturing activity, especially in the short-term.
Physical volume of production per sub-sector of manufacturing
Volume of production by sub-sector
6
2017 2018
4
2
0
% Change (y-o-y)
-2
-4
-6
Gross Domestic Product
-8
-10 • Conditions in the South African economy remain
unsatisfactory.
-12 • The rate of decline in consumer spending deteriorated to
Total Food & Textiles, Wood & Chemicals Non- Metals & Electrical Radio Transport Furniture
Manufac-
beverages clothing, paper (23.8%) metallic
5.8% in Q2 of 2009,
machinery machinery and TV
its worst performance
equip.
in almost
& other
25
turing (25.8%) leather & (11.3%) mineral years. (1.6%)
(18.7%) (1.6%) (7.2%) industries
footwear products (3.2%)
Source: IDC, compiled using Stats SA data (3.2%) (3.5%) • Factors contributing to poor consumer spending include
:
Note: Figures in brackets refer to the sub-sector’s percentage share of total manufacturing production in 2018. – Increased job losses
– Falling real disposable incomes
10Manufacturing sector (cont.)
Fixed investment and capacity utilisation
Fixed investment*and capacity utilisation • Weak demand conditions affected negatively production
14 88
activity in several manufacturing sub-sectors, leading to
12 spare production capacity and reducing the need for new
86
10 investment in its expansion.
84
• Many sub-sectors of manufacturing are operating below
Capacity utilisation (%)
8
design capacity, or recorded declines in the utilisation of their
% Change (y-o-y)
6 82
production capacity during the course of 2018.
4
80
2 • According to the RMB/BER’s latest manufacturing survey (Q1
78
2019), 76% of respondents indicated they were operating
0
below capacity. Although high, this was an improvement from
-2
76 the 82% recorded in the preceding quarter.
-4 Fixed investment (% change)
74 • Fixed investment in the manufacturing sector could remain
-6 Capacity utilisation
under pressure in 2019, as a net majority of manufacturers
-8 72 have indicated that investment in machinery and equipment
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | in 12 months’ time may be reduced further.
Source: IDC, compiled using Stats SA data
Note: * Fixed investment data for the manufacturing sector is only available on an annual basis. Hence, the y-o-y growth for the particular year is shown in Q4 of that year.
Utilisation of production capacity per sub-sector of manufacturing
Absolute change in sub-sectoral utilisation of production capacity
(Q4 of 2018 vs Q4 of 2017)
Total Manufacturing (83.1)
Other manufacturing (84.9)
Footwear (88.6)
Glass products (88.6)
Motor vehicles, parts & accessories (86.5)
Printing & publishing (78.8)
Rubber products (85.2)
Textiles (68.2)
Petroleum products (87.1)
Non-ferrous metals (80.9)
Beverages (88.5)
Non-metallic mineral products (81.2)
Other chemicals (87)
Basic chemicals (89.4)
Food (83)
Furniture (87.3)
Paper & paper products (87.2)
Plastic products (84.9)
Clothing (75.3)
Iron & steel (78.1)
Gross Domestic Product
Fabricated metal products (73.7)
• Conditions in the South African economy remain
Radio, TV & communication (83.6)
Machinery & equipment (79.1)
unsatisfactory.
Electrical machinery (77.9) • The rate of decline in consumer spending deteriorated to
Wood products (80.2) 5.8% in Q2 of 2009, its worst performance in almost 25
Other transport equipment (75.9)
years.
Professional equipment (82.7)
Leather (68.1) • Factors contributing to poor consumer spending include
-7 -5 -3 -1 : 1 3 5 7
– Increased job losses
Absolute change (%-points)
Source: IDC, compiled using Stats SA data
– Falling real disposable incomes
Note: Figures in brackets refer to the sub-sector’s percentage utilisation of production capacity in the fourth quarter of 2018.
11Manufacturing sector (cont.)
Expectations regarding employment creation
Employment trend - number of factory workers • Manufacturing sector employment has declined over time.
0 This has been attributable to various factors, including
insufficient demand, largely as a result of subdued economic
-5 conditions, but also due to competition from foreign producers
in the local market as well as in export markets; operational
challenges; declining employment intensity as players
-10
transformed production processes through mechanisation to
Net balance
enhance competitiveness; and, among others, generally low
-15 confidence levels among manufacturers.
• By the final quarter of 2018, formal employment in the sector
-20
stood at 1.21 million people, or 8.9% lower than the pre-crisis
high recorded in 2006. Nonetheless, the sector still accounts
-25 for about 10% of all formal sector jobs in the economy.
• Since the sector’s growth prospects are anticipated to remain
-30
Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 generally unsatisfactory in the near- to short-term, a
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using BER data meaningful recovery in manufacturing employment is unlikely.
Expectations regarding employment creation per sub-sector of manufacturing
Employment creation by sub-sector
Manufacturing total
Q4 2018 Q4 2017
Furniture & other industries
Motor vehicles, parts & transport equipment
Textiles, clothing, leather & footwear
Wood, paper, printing & publishing
Food & beverages
Glass & non-metallic mineral products
Gross Domestic Product
Chemicals, rubber & plastic products
• Conditions in the South African economy remain
unsatisfactory.
Basic metals, metal products & machinery
• The rate of decline in consumer spending deteriorated to
-100 -80 -60 -40
5.8% in Q2-20
of 2009, its worst
0
performance
20
in almost
40
25
years.
Source: IDC, compiled using BER data
Pessimistic • Factors contributingNeutral
to poor consumer spending
Optimisticinclude
:
– Increased job losses
– Falling real disposable incomes
12Inflation and monetary aggregates
Consumer price inflation
Consumer price inflation • Consumer price inflation rose steadily during 2018, from a low
10
CPI : Targeted inflation
of 3.8% in March to a peak of 5.2% by November. It
9 Goods subsequently slowed to 4.1% in February 2019. Inflation
8
Services averaged 4.6% in 2018, compared to 5.3% in 2017.
7 • Local fuel prices increased sharply on the back of a
depreciating Rand and rising international crude oil prices
% Change (y-o-y)
6
during 2018, although oil prices declined again towards the
5
latter part of the year. Excluding petrol, consumer price
4 inflation would have averaged 4.1% in 2018.
3
• Food inflation decelerated further to 3.3% in 2018, from 7% in
2 2017, on the back of the bumper maize crop in the 2017/18
1 season, as well as a return to more normal weather patterns
in several parts of the country.
0
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
• Looking ahead, the recently announced increases in electricity
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
tariffs, which are well above current inflation expectations, are
Source: IDC, compiled using Stats SA data
likely to apply upward pressure on consumer price inflation.
Producer price inflation
Producer price inflation • Inflation as measured by the producer price index (PPI for
12 final manufactured goods), increased to a peak of 6.9% in
October 2018 and averaged 5.5% for the year as a whole, up
10 from 4.9% in 2017.
• Key contributors to the higher PPI included diesel and petrol,
% Change (y-o-y)
8
with price hikes of 18.7% and 14.4% in 2018, respectively,
while motor vehicle prices rose by 14.3%. The prices of
6
chemical products increased by 8.1%, while those of paper &
printed products was 6.6% higher. Collectively, these products
4
represent 28.9% of the entire PPI basket and contributed 3.3
percentage points to inflation at the factory gate during 2018.
2
• The rates of increase in electricity prices have been on a
0
declining trend in recent years, averaging 4.6% in 2018,
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 compared to 11.8% in 2015. The opposite has occurred with
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | regard to water price increases, which averaged 10.4% in
Source: IDC, compiled using Stats SA data 2018, up from 6.8% in 2015.
Credit extension to the private sector
Private sector credit extension • Demand for new debt by households gained some momentum
20
during the course of 2018.
Households Corporate sector
15 • Nominal growth in household demand for credit averaged
4.6% last year, compared to 2.6% in 2017. This means that
credit demand remained unchanged in real terms, as CPI
% Change (y-o-y)
10
inflation also measured 4.6% in 2018.
5 • In contrast, corporate demand for credit slowed substantially
in light of worsening economic conditions and poor growth
0 prospects, especially over the short-term. In 2018, growth in
credit extension to corporates measured 6.9%, down from
-5
8.2% in 2017 and 13.1% in 2016.
• The recent decline in business confidence and rising risks to
-10 the growth outlook are likely to weigh on demand for credit by
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
the corporate sector, whilst consumers may also decide to
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
refrain from incurring too much debt in an uncertain economic
environment.
Source: IDC, compiled using SARB data
13Interest rates and yields
Repo and prime overdraft rates
Repo and Prime overdraft rates • After having lowered the repurchase (repo) rate by 25 basis
12
Repo rate
points (bps) in March 2018, the Monetary Policy Committee
Prime overdraft rate
(MPC) of the South African Reserve Bank (SARB) saw it
10 prudent to reverse this decision at its November 2018
meeting, when it raised the repo rate by 25 bps to 6.75%, on
Percentage (month-end)
8 the back of rising domestic inflation and higher interest rates
in the US.
6
• At its 28 March 2019 meeting, the MPC left the repo rate
unchanged, noting the recent easing in inflation, but also a
4 number of risk factors than could underpin upside pressure on
the price trajectory going forward.
2
• In light of the economy’s weak performance at present and a
fragile recovery, the MPC is expected to leave the repo rate
0
12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 unchanged throughout the remainder of this year.
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using SARB data
Inflation and interest rates
Inflation developments and the interest rate environment • Although the MPC only hiked the repo rate by 25 basis points
10 10 (bps) at its November 2018 meeting, the repo rate rose quite
Nominal Repo rate (Rhs) Real Repo rate (Rhs) CPI: Headline inflation
sharply in real terms (i.e. after adjusting for inflation),
8 8 specifically by 128 bps between October 2018 and February
2019. In this regard it should be noted that inflation surprised
Repo rates : Percentage
CPI : % Change (y-o-y)
6 6 on the downside, having fallen from 5.09% to 4.06% over the
same period, a drop of 103 bps.
4 4
• Thus, monetary policy has in fact been tightened in recent
months, as the real repo rate averaged 2.57% over the three
2 2 months to February 2019.
0 0
• Even though inflation outcomes may tick higher in coming
months on the back of a weaker Rand, higher crude oil prices
and the hike in domestic electricity tariffs, there should be no
-2 -2
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 need to raise interest rates as demand-pull factors are
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
basically not at play, and economic growth may come under
Source: IDC, compiled using Stats SA and SARB data renewed pressure in light of electricity supply challenges and
rising global risks, among other factors.
Long- and short-term yields
Long- and short-term yields • The yield on long-term government bonds trended higher over
12
Yield on long-term government bonds
the period March to October 2018 and was closely aligned to
11 91-Day Treasury bills
developments in global bond markets (e.g. US 10-year bond
yields).
10
• Moreover, a close correlation also exists with the movement of
9 the Rand-USD exchange rate, whilst inflation expectations are
Percentage
also influencing the direction of the yield curve.
8
• From November 2018, a modest declining trend was observed
7 in both the long- and short-term yields, on the back of an
6
appreciating Rand and a slowdown in domestic inflation.
• Concerns over the outlook for the South African economy in
5
2019, upside risks to inflation, the run-up to the May 2019
4 general elections, as well as the risk of downgrades to South
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
Africa’s sovereign credit ratings could exert upward pressure
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | on bond yields in the months ahead.
Source: IDC, compiled using SARB data
14Capital markets
Johannesburg Securities Exchange (JSE) performance
JSE performance • The downward trending FTSE/JSE All Share Index (Alsi) has
100 000
All Share Index
reflected, in part, the poor performance of the South African
90 000
Industrials
economy. Over the 12 months to 31 December 2018, the Alsi
80 000 Resources - Top 20
dropped by 11.4%, although many key global equity markets
also ended the year at lower levels.
70 000
• Despite operational challenges and declining commodity
60 000
prices, resources ended the year 13.1% higher. Industrials, in
Index
50 000 turn, came under severe pressure, as the index fell by 19.2%.
40 000 Construction sector weakness contributed to the 14.2%
30 000
decline in the corresponding index during 2018.
20 000 • The equity market rebounded strongly over the first three
months of 2019, with the Alsi having risen by 6.3% by 28
10 000
Monthly averages
March 2019. This was mainly supported by solid
0
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
performances from resources (Top 20, +14.5%) and
industrials (+5.9%), whereas the financial and construction
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using Bloomberg data indices fell further.
Shares traded on the JSE
Shares traded on the JSE • Although the volume of shares traded on the Johannesburg
700 35
Securities Exchange (JSE) increased by 6.7%, the value of
shares traded only increased by 1.1% in 2018. The relatively
600 30
subdued activity in the local share market is perhaps reflective
Value of shares: R Billion
500 25
of the difficult economic climate, low business confidence and
risk aversion towards emerging market assets.
Volatility index
400 20
• These developments were illustrated by the sharp rise in the
South African Volatility Index (SAVI), with foreigners having
300 15
been substantial net sellers of local shares and bonds during
200 10
the course of last year.
• The total value of share capital raised on the JSE fell sharply to
100
R55.6 billion in 2018, from R100.5 billion in 2017 - a 44.7% drop
Value of shares traded (Lhs) 5
SA volatility index (SAVI) (Rhs)
to a 14-year low.
0 0
12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
• The overall market capitalisation of shares listed on the JSE
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
dropped significantly (-18%) during 2018 to R12.7 trillion.
Source: IDC, compiled using SARB and JSE data
Net portfolio purchases/sales by non-residents
Net portfolio purchases / sales by non-residents • In general terms, the past six years witnessed rather dismal
100 outcomes, on a net basis, of investment activity by non-
75 residents in the domestic equity and bond markets.
50 • After starting 2018 on a solid footing, based on expectations
25
of an improved economic performance following leadership
change in the African National Congress and Mr Cyril
Rand Billions
0
Ramaphosa becoming South Africa’s President, international
-25 investor perceptions turned negative from May onwards.
-50 • Consequently, foreigners were substantial net sellers of local
-75 equities and bonds during 2018 as a whole, amounting to R53
billion and R88.5 billion, respectively.
-100
-125 • Concerns over economic developments resulted in further net
Net purchases of Shares Net purchases of Bonds sales of local shares by non-residents amounting to R15.2
-150
2010 2011 2012 2013 2014 2015 2016 2017 2018 billion over the first two months of 2019.
Source: IDC, compiled using SARB data
15Government finance
Budget balance
Budget balance as a % of GDP • The main budget deficit as a ratio of GDP fell to 3.9% in 2018,
0.0 an improvement from the 4.4% recorded in 2017.
-1.0
• The economy’s weak performance and challenges in tax
-2.0 collection have been impacting on government revenue. For
the 2018/19 fiscal year, the tax revenue shortfall relative to
-3.0
the 2018 Budget is estimated at R42.8 billion. This is mainly
-4.0 the result of the R22.2 billion decline in revenue generated
% of GDP
-5.0
through Value-Added Tax (VAT). The shortfalls with regard to
both corporate and personal income tax are estimated at
-6.0 R12.8 billion and R8.4 billion, respectively.
-7.0
• It should be noted, however, that the shortfall in VAT revenue
-8.0 was largely due to the accelerated VAT refunds in order to
clear the backlog.
-9.0
-10.0 • Looking ahead, the main budget deficit is forecast to widen to
Q4
|
Q2 Q4
2010 |
Q2 Q4
2011 |
Q2 Q4
2012 |
Q2 Q4
2013 |
Q2 Q4
2014 |
Q2 Q4
2015 |
Q2 Q4
2016 |
Q2 Q4
2017 |
Q2 Q4
2018 |
4.7% of GDP in 2019/20, before tapering off to 4.3% by
Source: IDC, compiled using SARB data
2021/22.
Government debt
Government's gross loan debt as a % of GDP • Government debt is a key fiscal metric closely monitored by
60 international credit ratings agencies. These have continuously
expressed concern over the debt trajectory, particularly its
50 sustainability .
• By the end of 2018, the total gross loan debt of government
40
represented 56.7% of GDP - a record high. Total debt
% of GDP
amounted to R2.76 trillion, 12% higher than in 2017.
30
• Furthermore, the gross loan debt of government is projected
to rise by 31% from its 2018/19 level to R3.68 trillion in three
20
years’ time. Hence, the debt-to-GDP ratio could rise to an
estimated 58.9% by 2021/22.
10
• Debt-servicing costs have been the fastest-growing
expenditure item in recent years, and are projected to account
0
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 for 12.6% of overall Main Budget expenditure, on an average
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
annual basis, over the next three years, measuring R247.4
Source: IDC, compiled using SARB data
billion by 2021/22.
Government savings
Government savings as a % of GDP • Fiscal challenges are affecting government’s ability to save.
0.5
• In 2018, dissavings by government increased to R94.9 billion,
0.0
from R80.8 billion in 2017.
-0.5
• The situation is unlikely to improve meaningfully in the
-1.0 medium-term, considering the fiscal challenges ahead.
Nonetheless, should the budget deficit-to-GDP ratio narrow,
% of GDP
-1.5
as projected over the next three years, dissavings by
-2.0 government could also be reduced.
-2.5 • Since government remains committed to fiscal consolidation,
taking measures to improve its financial position, this should
-3.0
ultimately bear fruit on its savings propensity and reduce the
-3.5 drag imposed on the country’s overall savings pool.
-4.0
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using SARB data
16Exchange rates
The rand vs. the US dollar and the Euro
Exchange rate movements of the rand • The rand came under severe pressure in 2018. Having started
20 the year relatively strong vis-à-vis the US dollar, averaging
18
Rand per euro
ZAR/USD11.95 in Q1 2018, it subsequently depreciated sharply
Rand per US dollar
towards an average of ZAR/USD14.25 in Q4 2018.
16
• The sharp depreciation occurred mainly in the second half of
Rand per USD or Euro
14 the year, triggered by the Turkish and Argentinian crises.
Although a recovery ensued, the rand has been under renewed
12 pressure in recent weeks
10 • Several factors have underpinned the weakening bias. On the
external front, these included monetary policy tightening in the
8 US during the course of 2018; dollar strength; and escalating
tension in the global trading arena due to US protectionist
6
measures. Domestically, these included uncertainty regarding
4 the land reform process; Eskom’s financial and operational
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 challenges, including the resumption of load-shedding; the
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | issue of nationalising the SA Reserve Bank; the run-up to the
Source: IDC, compiled using SARB and Bloomberg data
national elections; and the economy’s weak growth prospects.
The rand versus other foreign currencies
Exchange rate movements of the rand • The following depict the extent of appreciation (+) or
26 depreciation (-) of the rand against selected currencies over
24 the period March 2018 to March 2019*:
22
– Australian dollar : -9,9%
20
Rand per GBP or Yen
18 – Brazilian real : -3.7%
16
– British pound : -12,8%
14
– Chinese renminbi : -12.6%
12
10 – Eurozone euro : -10.2%
8
– Indian rupee : -12.1%
6 Rand per British pound
4 Rand per Japanese Yen (X 100) – Japanese yen : -13,7%
2 – US dollar : -17.8%
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using SARB and Bloomberg data
* The % changes are all based on monthly average exchange rates.
Effective* exchange rates of the rand
Real and nominal effective exchange rates • On a trade-weighted basis*, the rand weakened by 3.6% in
140
nominal terms (NEER) over the year to December 2018.
Nominal effective exchange rate
130
Real effective exchange rate Appreciation • Excluding inflation, however, the real effective exchange rate
120 (REER) was marginally stronger, having appreciated by 0.2%
110 over the twelve months to December 2018, with the final
Index: 2010 = 100
quarter of the year witnessing a slightly stronger appreciation
100
trend.
90
80
70
60
Depreciation
50
40
3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3 6 9 12 3
* Basket of currencies: Euro (29.3% weight), US dollar (13.7%),
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Chinese renminbi (20.5%), British pound (5.8%) and Japanese yen
Source: IDC, compiled using SARB data
(6.0%), among others.
17Balance of payments
Trade balance
Movements in the trade balance • The South African Reserve Bank reported that South Africa’s
100 trade balance recorded a surplus of R24 billion in 2018,
75
substantially lower than the R65 billion registered in 2017.
50
• The sharp reduction in the surplus on the trade balance was
largely due to the substantially higher value of oil imports,
25 resulting from the rising trend in global oil prices during the first
three quarters of 2018, alongside rand weakness. In turn,
R billion
0
export demand slowed as key global markets such as China
-25 and the Eurozone experienced a slowing growth momentum.
-50 • Despite weak economic conditions domestically, imports
increased considerably in 2018, even after taking into
-75
consideration the rising cost of oil and fuel imports.
-100
Seasonally adjusted and annualised data • The narrowing of the trade deficit in manufactured goods was
-125 supported by a 3.9% increase in the number of motor vehicles
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | exported in 2018.
Source: IDC, compiled using SARB data
Trade performance per sector
Change in export and import values : 2018 vs 2017
Agriculture
R64 495
Mining million
Processed food
Beverages
Textiles
Clothing
Imports Exports
Leather
Footwear
Wood products
Paper products
Printing and publishing
Petroleum
Industrial chemicals
Other chemicals
Rubber products
Plastic products
Glass
Non-metallic minerals Gross Domestic Product
Iron and steel
• Conditions in the South African economy remain
Non-ferrous metals
unsatisfactory.
Fabricated metals
Machinery & equipment • The rate of decline in consumer spending deteriorated to
Electrical machinery 5.8% in Q2 of 2009, its worst performance in almost 25
Radio & TV years.
Professional equipment • Factors contributing to poor consumer spending include
Motor vehicles & parts :
Other transport equipment
Furniture – Increased job losses
Other manufacturing – Falling real disposable incomes
-10 000 -5 000 0 5 000 10 000 15 000 20 000 25 000
R Million
Source: IDC, compiled using SARS data
18Balance of payments (cont.)
Current account of the balance of payments
Current account of the balance of payments
• The deficit in the current account of the balance of payments
and its respective components widened by R55 billion, from R118 billion in 2017 to R173
4 billion in 2018. This was largely due to the smaller surplus
Transfers
Income recorded on the balance of trade.
2 Services
Trade
• The income account (dividends and interest received from
Overall current account foreigners less those paid by South Africans to external
0 parties) recorded a larger deficit in 2018, at R154 billion,
compared to a deficit of R140 billion in 2017.
% of GDP
-2 • The deficit on the services account of the balance of
payments increased to R7.5 billion in 2018, from R5.3 billion
-4 in 2017. Tourism receipts played a role in this regard, with the
number of tourists from Europe having declined.
-6 • Transfer payments (on a net basis), including transfers to
SACU countries, fell to R35.7 billion in 2018, from R38.3
-8 billion in 2017.
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using SARB data
Note: Seasonally adjusted and annualised data
Balance on financial account
Balance on the financial account • South Africa attracted R142 billion worth of investments, as
90 recorded in the financial account, during 2018. This compares
80 to R110 billion in 2017. This account captures flows of direct
70
investment (generally of a longer-term nature), portfolio
investment (generally of a shorter-term nature), as well as
60
other (smaller) financial transactions.
50
• Political developments in South Africa early in the year were
R Billion
40
viewed positively by the international investor community. This
30 was reflected by substantial portfolio inflows during Q1 2018
20 and increased foreign direct investment (FDI) activity in Q2
and Q3 of 2018. However, as it became increasingly clear that
10
South Africa’s challenges will take time to be resolved,
0 investor sentiment soured, leading to both portfolio and direct
-10 investment outflows in Q4 2018.
-20
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 • Similarly, outward investment by South Africans slowed in Q2
| 2010 |
Source: IDC, compiled using SARB data
2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
and Q3, but their offshore investment activity increased
substantially in Q4 2018.
Total reserves and import cover
Total reserves and the import cover • The strengthening of the rand during Q4 2017 and in Q1 2018
800 8
Total reserves (gold & foreign exchange): (LHS) resulted in the value of South Africa’s reserves declining over
700 Import cover (months) 7 this period.
600 6
• During the subsequent three quarters of 2018, however, their
value increased in line with the steadily weakening currency,
Reserves: R Billion
Number of months
500 5 which offset the falling gold price in dollar terms.
400 4
• The total value of reserves ended 2018 at R742 billion,
exceeding the previous nominal peak recorded in Q4 2015.
300 3
• At this level, South Africa’s reserves cover around 5 months’
200 2
worth of imports. This import cover ratio remains above its
long-term average.
100 1
0 0
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
Source: IDC, compiled using SARB data
19Balance of payments (cont.)
Composition of the export basket
Composition of the export basket • Total exports increased by 5.4% in 2018, assisted by higher
100 commodity prices, on average, relative to 2017, as well as by
90
Manufactured products the rand’s depreciation during the year. The relative shares of
Agriculture, forestry & fishing the major components of the export basket remained largely
80 Gold unchanged.
Other mining products
70 • Agricultural exports increased by 7.8%, propelled by the
recovery in horticultural exports, as climatic conditions
% of Exports
60
improved in the winter rainfall areas.
50
• Mining sector exports, in turn, rose by 4.4%. Gold and
40 platinum exports increased in value terms, while challenges
30
on the iron ore rail line resulted in a significant decline in iron
ore exports, despite an increase in iron ore prices.
20
• The total value of manufactured exports increased by 5.7% in
10 2018, with the largest contributions made by motor vehicles,
parts and accessories (+R14.3 billion); non-electrical
0
machinery and equipment (+R5.8 billion); basic non-ferrous
Source: IDC, compiled using SARS data metals (+R5.5 billion); and basic chemicals (+R5.4 billion).
Imports according to broad category
Composition of the merchandise import basket • Despite the weak economic environment domestically, the
60 total value of imports increased by 11.6% in 2018, largely as
a result of the significantly higher value of crude oil imports
50
(which grew by R60 billion) and, to a lesser extent, printing
Intermediate goods and publishing (+R12.7 billion, most likely attributable to
imports of bank notes), as well as motor vehicles, parts and
40 accessories (+R9.7 billion).
• Higher raw material imports, mainly crude oil, were the result
% Share
30
Consumption goods
of a weakening rand in conjunction with rising oil prices
Capital goods
during the first three quarters of 2018.
20
• The subdued levels of fixed investment activity were reflected
in the decline in capital goods’ imports during 2018.
10
Raw materials • With household spending relatively resilient, the trend in
(incl. Crude oil) imports of consumption goods remained somewhat stable.
0
Source: IDC, compiled using SARS data
Key export destinations
Export performance by key destination • China remained South Africa’s largest trading partner, at the
140
2017 2018 individual country level, in 2018. However, the value of
120 exports to the world’s 2nd largest economy decreased, year-
on-year, in 2018. This may be attributed to a slowing Chinese
100
economy and to challenges faced by iron ore producers in
80
exporting their product on the Sishen-Saldanha railway line.
R Billion
• Germany overtook the US as South Africa’s 2nd largest
60
trading partner in 2018. Whereas motor vehicle exports to the
40 US declined, vehicle exports to Germany and the United
Kingdom (UK) increased significantly.
20
• Higher platinum exports further contributed to the improved
0 trade performance with the UK.
• Exports to South Africa’s main African trading partners
generally increased as higher commodity prices supported
increased economic activity in these markets.
Source: IDC, compiled using SARS data
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