Tag: recession

The recession that never happened

The South African economy grew 3.1% during the fourth quarter compared with the previous quarter — putting growth for the year at 1.3%, beating Treasury’s and other forecasts.

Compared with a year earlier, gross domestic product (GDP) increased by 1.5% in the fourth quarter of 2017.
Treasury had expected growth of 1% for the year.

The largest positive contributor to fourth-quarter growth was the remarkable recovery in the agriculture, forestry and fisheries sector, which increased 37.5% and contributed 0.8 of a percentage point to GDP growth.

The trade, catering and accommodation industry grew 4.8% and contributed 0.6 of a percentage point.

The primary sector (which includes agriculture and mining) increased by 4.9%, the secondary sector (manufacturing, electricity and construction) grew by 3.1% and the tertiary sector (trade, transport, finance, government and personal services) grew by 2.7% compared with the third quarter.

This signals that the country’s economy is poised for a recovery.

It is a vast improvement on the dismal 0.3% GDP growth achieved in 2016 but still remains weak by the country’s historic standards.

In the third quarter, the economy grew by 2% quarter on quarter, demonstrating a resilience that suggested it was in better shape than most economists had previously thought.

Expenditure on real GDP increased by 3.1% in the fourth quarter of 2017, while final consumption expenditure by general government increased by 1.3%.

Treasury is forecasting growth to rise to 1.5% in 2018 on political and policy certainty, renewed confidence and rising private fixed investment.

Finance Minister Nhlanhla Nene said on Monday that it was likely that the growth forecasts would be revised upwards due to improved business and investor confidence.

Growth for 2016 was revised up to 0.6% from 0.3%.

Third-quarter GDP growth in 2017 was revised higher, from 2% to 2.3%.

The changes were based on better access to data sets, said Statistics SA deputy director-general Joe de Beer.

The revisions indicate that SA wasn’t actually plunged into a recession last year. A recession is based on two consecutive quarters of negative growth.

The performance in the fourth quarter of 2016 has been revised from a 0.3% contraction to growth of 0.4%.

By Sunita Menon for Business Day

SA exits recession

South Africa’s economy exited its second recession in almost a decade in the three months ended June 30 after agricultural output surged.

Gross domestic product increased an annualized 2.5 percent in the second quarter compared with a revised decline of 0.6 percent in the previous three months, the statistics office said in a report released on Tuesday in the capital, Pretoria. The median of 21 estimates compiled by Bloomberg was for growth of 2.3 percent. The economy expanded 1.1 percent from a year earlier.

Low demand for the country’s exports and political turmoil that’s caused instability have weighed on output by Africa’s most-industrialized economy. S&P Global Ratings and Fitch Ratings Ltd. cut the nation’s international debt to junk in April after President Jacob Zuma fired Pravin Gordhan as finance minister, with the changes roiling markets and battering business and consumer confidence. The central bank cut its benchmark rate for the first time in five years in July, citing concern about the growth outlook.

“Higher commodity prices likely continued to catalyze growth in the mining sector,” Mamello Matikinca, an economist at FirstRand Ltd.’s First National Bank unit, said in an emailed note from Johannesburg before the release of the data. “While a shallow rate-cutting cycle may provide some relief to the consumer going forward, we nonetheless expect the recovery to be short-lived given just how weak consumer confidence and real wage growth is.”

Agricultural output surged 34 percent, the agency said.

The central bank halved its economic growth forecast for this year to 0.5 percent and trimmed the outlook for 2018 to 1.2 percent from 1.5 percent. GDP expanded at the lowest annual rate since a 2009 recession last year.

The inflation rate dropped to an almost two-year low in July, reaching 4.6 percent.

The rand 0.1 percent to 12.9543 per dollar by 11:31 a.m. Yields on rand-denominated government bonds due December 2026 were little changed at 8.52 percent.

The government will probably cut its output forecast in October, when Finance Minister Malusi Gigaba delivers his first medium-term budget policy statement.

In the February budget review, the National Treasury left its growth estimates unchanged from the mid-term budget in October, with the economy forecast to expand 1.3 percent this year, 2 percent next year and 2.2 percent in 2019.

Annual growth has slumped since 2011, which has hampered the government’s ability to reduce the 27.7 percent jobless rate.

By Arabile Gumede and Thembisile Dzonzi for Business Live

Pressure mounts on JSE as it retrenches staff

The JSE, Africa’s oldest and largest stock exchange, has announced the restructuring of its operations that will see it shed 14% of its workforce by the end of the year as it adapted to technological changes.

JSE chief executive, Nicky Newton-King, said in a statement on Friday that the company was restructuring against the backdrop of South Africa’s low economic rate, ratings downgrades and low business confidence and as exchanges were adapting to fast paced technological changes.

Newton-King said the cost cutting would see the technology expenditure cut by a minimum of R70million over two years.

It said the changes would also involve a reduction in the company’s full time staff complement by 60 people, resulting in annualised cost savings of nearly R170m, to be fully realised from 2019 onwards.

The JSE made R65m in annualised savings to date through a combination of removing vacancies and reducing discretionary spend, she said.

“If we want to create a building block for future growth we must take some early decisions and there are none tougher than those that involve our people,” she said.

“We looked at all avenues before considering this action. While we appreciate this will be a very difficult time for the affected employees, the newly aligned company will be in a strong position to serve its current and future clients more effectively,” said Newton-King. She said this was preparing the JSE to meet the challenges head-on.

“The fast moving nature of our business requires us to change the way in which we operate so that we are as nimble and as cost effective as possible.

“We cannot do so without significantly rethinking our cost base, our operating model and the way we are structured as a business,” she said.

She also said the restructuring would see the refreshing of the JSE’s IT operating structure to align to best practice.

“At the same time, our large dependency on IT requires that we look at using technology in a more agile manner to support the execution of our business strategy,” Newton-King said.

Geoff Cook, director and co-founder of JSE competitor ZAR X, South Africa’s first additional stock exchange in 60 years, said on Friday it was not surprising that the JSE was restructuring, owing to the high costs associated with its old-world exchange model.

“The JSE model attracts high infrastructure costs and its technology model is inefficient – the market disruption brought about by modern technology is forcing these changes for it to remain relevant,” said Cook.

Global law firm Baker McKenzie’s latest Cross Border Initial Public Offering Index said South Africa’s three domestic listings raised a total of $250m (R3.34billion) in the first half of 2017. This was the highest amount of capital raised by South African companies recorded during the first half of any year since 2012.

A total of 388 companies are listed on the JSE which has a capitalisation of R14.271bn.

Lumkile Mondi, a senior lecturer at the school of economic and business sciences at the University of the Witwatersrand, said the country’s economic problems made it difficult for the JSE to attract listings.

By Dineo Faku for IOL

Prospects for the retail sector remain weak and are unlikely to improve in 2017, as confirmed by Massmart’s interim sales update released on Monday.

In the 26 weeks to June 25, Massmart recorded R42.5bn in sales, representing an increase of 0.5% compared with the year-earlier period. Comparable store sales fell 1.6%. Product inflation was estimated at 3.2%.

Massmart’s share price initially dipped more than 2% after the announcement, but bounced back into marginally positive territory. “I don’t know if there was anyone who was massively disappointed by the update,” said Old Mutual Investment Group consumer and industrial sector analyst Brian Pyle.

“Nobody really expected anything else other than what Massmart reported today. People are expecting tough times and the update shows it. That said, these numbers are weak.”

Comparable store sales fell at most of the company’s trading divisions. Like-for-like sales fell 3.5% at Massdiscounters, by 0.2% at Massbuild and 3.3% at Masscash. Masswarehouse grew comparable sales by 1.5% with inflation of 3.9%.

Mergence Investment Managers portfolio manager Peter Takaendesa said the food side of the business performed better than nonfood categories. Sales growth in food was 3%. In general merchandise it fell 2.9%.
“As we saw in the recently reported Woolworths numbers, the trend of better food sales relative to nonfood consumer goods is evident in Massmart’s numbers. Consumers are largely in survival mode and discretionary items have to take a back seat for now,” he said.

The biggest concern for all retailers was the downward trend in growth rates to levels much lower than cost inflation. This came at a cost to profit margins, said Takaendesa.

For Massmart, he expected a technical improvement in the sales rate for the rest of the year, but a stronger recovery was only likely later in 2018 “and could be better if we get an interest rate cut sooner to help consumer confidence recover”.

“It’s going to be difficult for Massmart’s turnaround efforts to show the intended results given much weaker consumer spend and the mid-long term risks posed by independent e-commerce rivals such as Takealot, which need to be monitored closely,” he said.

Ashburton Investments said that it preferred Woolworths in this sector.
Woolworths said it expected its adjusted headline earnings per share for the year to June 25 to fall between 5% and 10%.

“Massmart’s update shows the really poor consumer environment in SA,” said Ashburton portfolio manager Wayne McCurrie. “This is not unique to Massmart. All consumer firms are suffering the same — a subdued consumer in recession.”

McCurrie said the performance of Massmart’s food division was reasonable and the performance of the nonfood goods was “terrible”, but that the market knew this after SA fell into recession.

Pyle said the next six months were not going to be any better for any retailer, but that the sector could see recovery in 2018.

By Colleen Goko for Business Day

South Africa enters a recession

Gross domestic product contracted 0.7% for the first quarter of 2017, indicating that the country has entered into a recession, according to deputy director general of Economic Statistics at Statistics South Africa (Stats SA) Joe de Beer.

The latest GDP data was released by Stats SA on Tuesday.

For South Africans, this means:

  • The value of the rand is weaker, driving the price of commodities and imports up

  • Food and petrol prices are likely to increase

  • Foreign investment will slow

  • Local job creation will slow

  • The unemployment rate will continue to rise as companies contract and lay people off

The contraction follows the GDP decline of 0.3% in the fourth quarter of 2016. In 2016, the economy grew only 0.3% for the year.

Compared to the previous year, GDP growth came to 1%. “Over the last four years there were instances of negative economic growth prior to the last two quarters,” said De Beer.

The main contributors to the contraction were the trade and manufacturing industries. Trade declined 5.9% and manufacturing contracted 3.7%.

The agriculture and mining industries were the only sectors which made positive contributions. Agriculture increased growth by 22.2% on the back of the drought recovery, and mining grew by 12.8%.

However, expenditure on GDP contracted by 0.8% in the first quarter.

Household consumption declined 2.3%, with spend of food and non-alcoholic beverages, clothing and footware and transport the major contributors to negative growth.

Gross fixed capital formation grew by 1%, mainly due to machinery and equipment which grew by 7.9%.

Net exports contributed negatively to growth and expenditure on GDP, while goods and services contributed negatively to growth in exports. Exports of mineral products and vehicles and transport equipment were largely responsible for the decrease in goods, according to Stats SA.

Imports, which increased 3.2%, were driven by imports of mineral products.

Government consumption expenditure contracted 1%.

Recently the World Bank projected low growth for the following two years. The World Bank expects growth of 0.6% for 2017, 1.1% for 2018 and 2% for 2019. The projections for 2017 and 2018 are 0.5 and 0.7 percentage points less respectively than its January 2017 figures, Fin24 reported. data

The Reserve Bank also revised down growth forecasts. At the monetary policy committee rates announcement in May, Reserve Bank governor Lesetja Kganyago said political tensions and the sovereign downgrades to junk status have presented risks to growth.

The Reserve Bank’s growth forecast for 2017 is now 1%, down from 1.2%. Growth projections for 2018 were cut down from 1.7% to 1.5%. Similarly, the 2% growth forecast for 2019 was revised to 1.7%.

At its recent credit review, ratings agency Standard and Poor’s (S&P) emphasised that low growth remained a concern. S&P explained political risks would weigh heavily on growth priorities and this would slow fiscal consolidation.

“We believe the current political environment could result in the private sector delaying business investment decisions, thereby restraining GDP growth,” said S&P.

S&P projects growth to rebound to 1% in 2017 and average at 1.5% between 2017 and 2020.

By Lameez Omarjeev for News24

South Africa has staved off a technical recession as Statistics SA announced on Tuesday that the economy grew by 3.3% quarter-on-quarter in the second quarter of 2016.

This was better than the expected 2.8% expansion and following the 1.2% contraction in the previous quarter.

The South African data in the past couple of months has been fairly decent, and this was certainly reflected in the GDP number, says TreasuryOne.

“We are still a miles away from where we want to be, but there is some light on the horizon.”

“This is good news all round as a technical recession was avoided. The Easter weekend falling in March no doubt helped the second quarter and we may actually get positive growth this year,” economist Mike Schüssler told Fin24.

The year-on-year growth was 0.6%.

Mike de Beer, who announced the growth stats on behalf of Statistician General Pali Lehohla, says for the first time in a long while there was a positive growth rate in all three the large sectors. The primary sector showed a growth rate of 8.8%, with mining up by 11.8% and agriculture down 0.8%.

The secondary sector grew by 5.3% with manufacturing up 8.15%, construction up by 0.1% and electricity down by 1.8%. There were notable increases in the petroleum and motor vehicle manufacturing divisions.

The tertiary sectors showed a growth rate of 2%, with finance up 2.9%, transport up 2.9%, trade up 1.4%, government up 1.2% and personal services up 0.8%.

He indicated that manufacturing, mining and quarrying made the biggest contribution to GDP growth. Manufacturing increased by 8.1%, largely due to higher production in petroleum and chemical products, rubber and plastic products and motor vehicles, parts and accessories and other transport equipment.
CHART: SA economy rebounds as political risks loom
There was flat growth from the rest of the economic sectors, like construction, for instance, says De Beer.

Nominal GDP is estimated at just more than R1trn. The finance sector is the biggest contributor followed by government, trade and manufacturing. About R1 in R5 comes from the financial sector.

Real expenditure on GDP increased by 3.4% in the second quarter on a q/q basis. It was mostly export driven. Government consumption expenditure increased by 1.3%. There were declines in gross fixed capital formation and imports of goods and services.

Household final consumption expenditure increased by 1% q/q. The strongest growth came from miscellaneous goods and services (8.9%). The growth in consumption expenditure was mostly on the services side.

Government final consumption expenditure increased by 1.3% q/q and gross fixed capital formation decreased by 4.6% q/q. Construction works declined by 14.4% and machinery and other equipment by 13%.

Exports increased by just over 18% in the second quarter, while imports decreased by 5.1% q/q.

De Beer says the growth rate tells the same story as the last 3 or 4 years in terms of GDP growth.

“Yes, it is good news, but – and this is the big problem – the economy is already far weaker in the third quarter and we need to also understand that with a population growth at 1.7% we are growing far slower than that on a year-on-year basis,” says Schüssler.

He says that means the average South African is still poorer than a year ago or even three years ago.

“That is the real problem: we are not keeping pace with our population growth,” he cautions.

By Carin Smith for News24

Dark clouds are gathering for South Africa with fears the ailing economy – which shrunk by 1,2% in 2016’s first three months – could fall into recession after hitting a slump in the first quarter of 2016.

Although a technical recession is described as two successive quarters of economic decline, economist Dawie Roodt told Fin24 in his view South Africa is already in a recession.

“As far as I am concerned we have been in a recession for the past year. The reason is our economy has been growing below the growth levels of our population.”

Roodt says South Africa is battling with soaring unemployment and low skills.

“We need to grow the economy’s primary sectors such as mining and agriculture in order for unskilled people to work, but both these sectors are in recession,” he cautioned.

What went wrong
The first quarter gross domestic product (GDP) figures announced by Stats SA on Wednesday came out worse than the markets expected. It showed that the economy contracted by 1.2%, down from marginal growth of 0.4% in Q4 2015.

The drag on the economy came mainly from a sharp drop in the mining and quarrying sector (-18.1 % quarter-on-quarter), hurt by the sluggish global demand and the ongoing slump in global commodity prices.
In addition, sharp declines were also recorded in the drought-damaged agriculture sector (-6.5 %), in electricity, gas and water (-2.8 %) and transport, storage and communications (-2.7 %).

It’s the third time since 2014 that GDP ventured into negative territory. In the first quarter of 2014, GDP fell to -1.6%, but recovered in the following months. In the second quarter of 2015 it again declined to -2%.
Roodt says to get the country back on track, the government needs to address labour legislation, skills development and infrastructure; however he added that South Africa is suffering from weak political leadership.

Policy reforms needed
The Institute of Race Relations (IRR) called for policy reforms to be urgently implemented to avert a recession.

IRR CEO Dr Frans Cronje says the mining and agriculture sectors are being undermined by hostile and counter-productive policymaking.

The agriculture sector is still plagued by the lingering impact of the drought on many farming regions, while the mining industry faces uncertainty with a new draft Mining charter on the cards and the draft Minerals and Petroleum Resources Development Amendment (MPRDA) bill still not concluded.

“Ideology is still too dominant a factor in government policymaking and there is a reluctance to accept that ideology does not work in the real world,” he says in a statement.

“Despite statements about the importance of growth there is very little on the policy front to suggest that the Cabinet is serious about securing an economic turnaround”.

Cronje says the IRR would like to see in the next quarter certainty around mining policy and changes to labour legislation. “Specifically the introduction of strike ballots, a reworking of foreign investment protections and a complete redraft of pending expropriation legislation.”

Labour needs deregulation
He added that the labour market needs to see a significant degree of deregulation, empowerment policy must be sculpted so as not to deter investment, and property rights need to be secured.

“Without these steps South Africa will not secure the investment to drive higher growth and employment rates,” says Cronje. “If these steps are not taken it is difficult to see how South Africa will avoid entering a recession which would almost certainly trigger a sovereign rating downgrade by year-end putting the country into a sharply negative economic spiral”.

Director and Investment Strategist at Brenthurst Wealth Magnus Heystek says the depressed GDP figures is alarming news and time for belt-tightening by government and consumers.
“Dark clouds are gathering for the South African economy”, he told Fin24, adding that for investors this is equally bad news.

Heystek says now more than ever, in his view, investors need to diversify and look at investments beyond the local market.

“The outlook for returns from the local market has been dealt another blow with this poor growth number, in the wake of the many profit warnings already issued by companies listed on the JSE.”

The World Bank also slashed its 2016 global growth forecast, with South Africa now expected to grow at a 0.6% rate in 2016, 0.8 of a percentage point more slowly than the January estimate.

By Adiel Ismail for Fin24

Times are tough for everyone at the moment and many South Africans are looking for ways to boost their income with after-hour (or full-time) home businesses, says Claire Cobbledick, head of Marketing for Gumtree South Africa.

“We’ve definitely seen an uptick in home businesses as belts are tightening. Demand for these services has also increased, because home-based businesses are able to offer their services at a decreased price as overheads are much lower. It’s a great solution for stay at home moms or pensioners that do not want to re-enter the formal workplace or entrepreneurs who do not have the means to rent a premises.”

Doggy day-care/grooming
If you love dogs and have a lot of patience and skills, you may want to look into doggy day care. “Dogs require companionship and can become quite destructive if left at home all day, which is why many working pet owners are happy to pay someone to look after their furkids while they are at the office,” says Cobbledick. “If you have plenty of garden space (and neighbours who are willing to oblige) this is a great line of business. Dog groomers (particularly mobile ones) are also in vogue – it saves the stress of going to a parlour and is usually a bit cheaper.”
Just make sure that your business isn’t too disruptive. “A big pack of dogs can create a lot of noise and your neighbours will be within their rights to lodge a complaint about your business if they bark all day or if you let hygiene slide. Make sure that you are able to walk the pets in your care and preferably warn the postman!”

Cash injection potential: R50-R250 per day for day-care / R150-R200 per grooming session

Housesitting is another popular business on Gumtree, particularly for pensioners and students who have free time during the holidays. “It might be a little harder to get started with this business – it requires a lot of trust from the home owner. Make sure that you have contactable references and a great ad. It helps if you are able to perform services such as pet sitting and minimal gardening. Once you’ve been going for a while, you’ll soon find lots of repeat business and recommendations.”

Cash injection potential: R150 – R250 per day

Mobile salon and beauty treatments
A lot of people simply do not have the time to make it to their local salon during business hours, which is why savvy and skilled beauty and massage therapists and hairdressers are making a killing after hours with their mobile salons. “Many beauty parlours and salons require that you purchase your own products anyway, so this is a good way of supplementing your income and using your skills to your advantage. It does require a bit of capital to build up products, but once you’re set up, your running costs are fairly low. You can work from home or meet clients at their homes and businesses. Make sure that you calculate your travel costs carefully and charge a surplus for outlying areas to keep your profit margins healthy.”

Cash injection potential: R120 – R850 per client depending on treatment

Driver for hire
Applying for a Professional Driving Permit (PDP) enables you to act as a driver for hire – for any occasion. “Good drivers are always needed for parties, rugby matches, the school run or errands. If you have a roomy car and a professional driving permit, you are good to go. New Year’s is a particularly lucrative day, but you have the potential to earn money year-round for this.”

Cash injection potential: Dependent on distance and duration

Anyone who has ever guiltily relegated a “project” to the corner of the house will testify that sometimes it’s just easier to get a handyman in to do the little jobs you’ve been meaning to get to. “Hanging pictures, changing plugs, fixing up skirting boards, painting and all the other odd jobs that we end up putting off because we don’t have the time or the right tools call for a home handyman. If you have some plumbing or electrical skills on top of DIY work, you will never be short of clients. Don’t forget to charge for materials and wear and tear on your tools though!”

Cash injection potential: R150 per hour plus call-out fees and materials (more for plumbing/electrical jobs)

Cobbledick says that Gumtree has thousands of home-based services listed on the site, which is why it’s important to keep your business top of mind. “Pay to bump up your ads every now and again. Include pictures and examples of previous work. And always respond to queries in a timeous fashion – downloading the app provides access to instant messaging, which literally allows you to respond to a client in seconds.”

In just a few days’ time, South Africans will feel the real impact of the struggling economy as inflation records a seven-year high, the drought deepens and several everyday items go up in price.

Already, non-governmental organisations are seeing increases in the number of poor South Africans experiencing malnutrition.

Next month, Eskom hikes the price of electricity by 9,4%, petrol and the new fuel levy will cost 80c more a litre and DStv subscription goes up by 8%.

Moreover, the prices of many foodstuffs have over the past few months been climbing, driven by inflation and the drought. The Reserve Bank said last week that inflation had reached 7% in February.

The poor are the worst hit. Already, one in four children go to bed hungry, according to data from the Human Sciences Research Council’s National Health and Nutrition Examination Survey.

“We expect life to get much worse for the poor,” said Mervyn Abrahams, CEO of the Pietermaritzburg Agency for Community Social Action. “People struggle to get by day to day.”

He said there was a pensioner who no longer bought vegetables because they had become too expensive as a result of the drought.

Abrahams said he also knew of a boy receiving food through his school’s feeding scheme. He said the boy brought his plastic container to school so he could take his lunch home to feed his three-year-old and five-year-old siblings.

Abrahams said his organisation had calculated that a basket of food containing enough protein and vegetables would cost a family of seven R4239 a month. An average household in Pietermaritzburg survives on R3200 a month .

On the West Rand, activist Cora Bailey said she had seen an increase in the number of hungry people approaching NGOs for food. In one instance, a grandmother approached an NGO with a baby.

“The mom has abandoned the child. The grandmother is [an illegal immigrant] from Lesotho and can’t apply for the child support grant. She didn’t have money for baby formula. The child looked [unhealthy] and she didn’t look too good herself,” said Bailey. “I had to split a food parcel for two with four people on Thursday.”

“I think we’re going to have a food revolution,” she added.

“When winter comes and people are both cold and hungry, we’re going to see huge problems. Honestly, I don’t know how people are coping.”

Economist Dawie Roodt said the situation looked bleak as more interest rate hikes were likely.

Already, a middle-class family with a R1-million bond faced a R300 increase in monthly mortgage repayment following the recent interest rate hike.

Interest rate hikes, he explained, meant people paid more for their debt and there was less money in the economy.

Less spending caused factories to produce less, which led to retrenchments Roodt added.

Middle-class families face further squeezes, with the petrol price increase at 41c a litre next month. But with increased taxes on fuel, it is likely to cost about 80c more, according to the SA Institute of Race Relations. The institute’s Ian Cruickshanks said with the rising food and fuel prices, the government had to realise it had to start spending what it had.

Roodt also said the weakening rand meant imported goods were more expensive. “High unemployment and the high cost of imported goods could be an opportunity for entrepreneurs to create jobs and factories to make things.

”But the government must stop harassing business owners and taxing them to death.”

By Katharine Child for www.timeslive.co.za

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