Tag: economy

By Siphelele Dludla for IOL

The South African economy shrunk by 1.5 percent in the three months to September following four quarters of consecutive growth, eroding some economic gains made since the Covid-19 pandemic started.

This was the first quarter of contraction since the second quarter of 2020.

Statistics South Africa (StatsSA) today said this was due to the pressures of tighter Covid-19 lockdown restrictions during the third wave and a spate of civil unrest in July.

The country was on Alert Level 4 lockdown from 28 June to 25 July, impacting growth in the tourist accommodation sector, as well as constricting restaurant and catering trade.

This latest gross domestic product (GDP) reading means that the economy in the third quarter of 2021 was on par with the first quarter of 2016.

“The economy is 3.1 percent smaller than it was before the Covid-19 pandemic,” StatsSA said.

StatsSA said 6 of the 10 industries recorded a decline in production in the third quarter, with agriculture, trade and manufacturing the hardest hit.

The agriculture industry recorded its biggest drop in production since 2016, contracting by 13.6 percent.

Together with a decline in the production of animal products, the industry in KwaZulu-Natal was dealt a major blow by the civil disorder in July.

Maize, citrus and sugarcane farms recorded losses from fires set during the upheaval.

The trade industry shrank by 5.5 percent, with all trade sectors reporting losses.

Wholesale, retail and motor trade were negatively affected by the widespread looting and destruction that gripped KwaZulu-Natal as well as Gauteng.

StatsSA said a cyberattack that disrupted operations at South African ports also dealt a further blow to motor trade.

The manufacturing industry declined by 4.2 percent, dragged lower in the main by the civil disorder and global shortages of raw materials.

However, four industries managed to keep their heads above water, with the finance industry increasing economic activity by 1.2 percent.

Personal services saw an uptick in economic activity on the back of increased spending on private healthcare and the roll-out of COVID-19 vaccines for those aged between 18 and 35 years. General government expanded by 0,4%, attributed to a rise in employment in local government and extra-budgetary accounts and funds.

What South Africans owe on their credit cards

Source: Supermarket & Retailer

The findings of TransUnion’s Q2 2021 South Africa Industry Insights Report covers a period where unemployment was still rising, but prior to July’s civil unrest and peak in the third wave of Covid-19 cases.

The report shows that a number of the trends, seen immediately after the outbreak of Covid-19 more than a year ago, have continued to advance with some notable exceptions, especially when looking at delinquencies.

Understanding the delinquency picture

Delinquency rates during the pandemic have been influenced by a number of important factors, the credit specialist said. Deferrals, payment holidays and other accommodations by lenders have helped borrowers in need. A decline in new borrowing in the past year since the onset of the pandemic has also shifted the overall ratio of good versus bad debt within lenders’ portfolios.

While a general increase in overall debt has been apparent, the total number of new loans and accounts has decreased as a result of the decline in originations. This means that while the numerator in the delinquency equation (i.e., existing accounts with delinquencies) is rising, the denominator is not growing at the same pace, said TransUnion.

Add in other drivers for which accounts financially distressed consumers choose to repay – e.g., prioritising product utility such as credit card functionality for online payments or car loan payments to ensure you can avoid public transport- and it’s clear that there are often multiple drivers for changes in delinquency levels, the group said.

Typically, delinquencies have often followed wider macroeconomic trends such as GDP growth and changes in unemployment.

In the latest Q2 2021 figures, although there were improvements in most of the major consumer credit categories, unsecured personal loans recorded a significant increase in balance-level delinquencies – bank personal loans were up 260 bps YoY and non-bank personal loans 700 bps.

A higher delinquency rate for non-bank personal loan providers is to be expected as they have historically targeted higher-risk consumers who are more likely to default and will be less resilient to sustained financial hardships, such as those caused by the pandemic.

“Finding and funding resilient consumers becomes even more crucial during challenging economic periods when looking to maintain a healthy portfolio delinquency ratio.

“The key is to fuel new credit growth by finding good consumers, who are likely to perform within lenders’ target thresholds and in return can help maintain a healthy bad-to-good ratio for longer-term lending growth,” said Carmen Williams, director of research and consulting at TransUnion South Africa.

Credit demand in a post-pandemic world

Throughout the pandemic, TransUnion’s data has shown reduced appetite from both consumers (demand) and lenders (supply) for new account openings (as measured by originations), and this continued in Q2 2021.

“However, with the world economy slowly starting to reopen and vaccination programs gaining pace, the future shape of the consumer credit market will depend on a number of important variables,” it said.

Historically, macroeconomic conditions have been an important factor in the pace of credit growth. Equally, consumer sentiment also has a significant bearing. Although the latest IIR data is for Q2 2021, TransUnion also conducted its regular Consumer Pulse Study in August 2021, which was post the civil unrest and the initial peak of wave three Covid-19 infections seen in early July.

This study showed a number of important trends relevant to potential future demand and direction of the market in South Africa, the credit specialist said.

The number of South African consumers anticipating in August that they would apply for new credit or refinance existing credit within the next year was just under a third (31%). Personal loans (43%) and new credit card (35%) applications continued to be top of the list, said TransUnion.

“There continues to be significant turbulence in the South African consumer credit market, with a number of potential new trends emerging, especially in the delinquencies space. Wider economic and political news continues to impact consumer sentiment and outlook, and these will shape the recovery as it continues to emerge,” said Williams.

“Lenders need to constantly monitor for shifts in consumer behaviours and adapt to the changing demand and future preferences of consumers if they are to succeed. There is no doubt the road to recovery will be a bumpy one, but by being informed, lenders will have the best possible chance to compete and succeed.”

Credit card is the only credit product to show high levels of continued origination decline since the beginning of the pandemic (down 23% YoY in Q2 2020, 63.2% YoY in Q3 2020 and 48.6% YoY in Q4 2020 and 42.7% YoY in Q1 2021). This is largely due to lenders implementing tightened credit-granting policies in the midst of economic uncertainty, said the credit specialist.

Lenders remain focused on extending credit to existing customers rather than onboarding new borrowers. Average balances increased by 17.6% and total credit limits increased substantially by 15.2% while new loan amounts increased by only 2.2%.

Outstanding balances for credit cards (up 10.6% YoY) have been driven by consumers’ need to balance household budgets, maintain liquidity, and finance subsistence purchases, especially where incomes have been negatively impacted. However, increases weren’t evenly distributed, and a clear generational divide has emerged.

Younger consumers increased their outstanding credit card balances more than older generations. The Q2 2021 YoY change for Millennials (born 1980-1994) was 9%, compared to 6% for Gen X (1965-1979) and only 3% for Baby Boomers (born 1946-1964).

Younger generations tend to transact more online, and the utility a credit card provides is fundamental to this activity. Credit card account-level delinquencies were down 50 basis points (bps) from their peak in Q2 2020, and in Q2 2021 stood at 12.3%, and were at the same level as Q2 2019.

This improvement provides further evidence that credit cardholders are protective of and value the revolving functionality that this product holds, TransUnion said.

Financially strained South Africans cut spending

Source: Supermarket & Retailer

South Africans under financial pressure due to the Covid–19 pandemic are cutting spending on non-essentials such as restaurants and take-aways, and TV subscriptions.

These were the findings of Santam’s Insurance Barometer report for 2020/21.

Its findings were in line with the Old Mutual Savings & Investment Monitor (OMSIM) released in August which also found that women were cutting down on shopping at premium grocery stores like Woolworths.

The Santam Insurance Barometer showed that the challenging economy, political unrest, the pandemic impact on businesses, cybercrime and climate change are among the top risks highlighted by consumers, intermediaries and corporates polled.

Santam said that some of the most notable trends among South African consumers over the past 18 months were that 50% of consumers reduced the number of kilometres driven each week by an average of 44%, from 162km to 90km per week.

This was likely brought on by the increasing work-from-home trend brought on by the Covid–19 lockdown in South Africa.

On the technology front, 16% of consumers upgraded their computers and connectivity to enable them to work from home. Three in four people reported an increase in their use of technology.

In addition to measuring the concerns of individuals and organisations related to short-term insurance, the survey also asked respondents regarding their spending habits.

Consumer respondents said they targeted the following areas when looking to reduce expenditure, in the following proportions:

  • 59% — restaurant outings, food take-aways when looking to reduce expenditure
  • 45% — travel and petrol, clothing, footwear, and accessories
  • 33% — hobbies, sports and gym expenditure
  • 28% — groceries
  • 23% — TV subscriptions
  • 19% — domestic travel
  • 15% — cellphone contract
  • 10% — repayment of debt
  • 10% — school fees

BusinessTech noted that Santam’s findings were in line with those from the Old Mutual Savings & Investment Monitor (OMSIM) published in August.

In addition to showing that consumers cut back on spending, the OMSIM also showed that South Africans adapted their lifestyles.

The top ways households reduced expenditure was by switching to cheaper supermarket brands, and downgrading DStv and streaming services.

While OMSIM specifically mentions Woolworths in relation to people switching to cheaper supermarket brands, it is interesting to note that Woolworths reported an increase in sales at its grocery stores in its latest financial results.

South Africa’s economic growth at 1.2%

By Prinesha Naidoo for Bloomberg

South Africa’s recovery from a coronavirus-induced contraction quickened in the second quarter as restrictions to contain the pandemic were eased.

Gross domestic product expanded 1.2% in the three months through June from a revised 1% in the previous quarter, Statistics South Africa said Tuesday in the capital, Pretoria. The median estimate of four economists in a Bloomberg survey was for growth of 0.9%. The agency no longer reports an annualised growth rate and now uses 2015 as the base year for the data.

South Africa’s economy is slowing recovering from Covid-19 damage

The economy grew 19.3% from a year earlier — the first year-on-year increase in five quarters. That’s up from a low base in the second quarter of 2020, when a strict Covid-19 lockdown shuttered most activity, and compares with the 17.8% median estimate of 14 economists in a separate Bloomberg survey. Output remains below pre-pandemic levels.

While the quarterly outcome supports forecasts that predict Africa’s most industrialised economy will recover from its biggest contraction in at least 27 years, it’s likely to be revised after the statistics agency was forced to use an estimated value for missing mining data. That’s because the Department of Mineral Resources and Energy failed to provide it with timely information needed to calculate mining production and sales figures for June.

The economy is likely to contract in the third quarter after deadly riots, looting and arson erupted in July and weighed on activity in the eastern KwaZulu-Natal province and the commercial hub of Gauteng — the two biggest provinces by contribution to GDP. A cyber attack at the state-owned ports and rail operator also hobbled trade at key container terminals and led the company to declare its second force majeure in a month.

“The economy has overall shown itself better at recovering in the past year than initially expected — either at the start of Covid-19 or into this data — but there is still significant uncertainty over the impact the unrest will have in the short term and longer term into lower investments,” said Peter Attard Montalto, head of capital markets research at Intellidex.

Risks to outlook
A fourth wave of Covid-19 infections that’s due in early December and could prompt stricter lockdown measures amid vaccine hesitancy, electricity-supply constraints and the slow pace of structural reforms could further weigh on output for the second half of the year. It could also hinder job creation in a nation where more than a third of the workforce is unemployed.

The second quarter outcome translates to annualised growth of nearly 5%, said Joe de Beer, deputy director-general of economic data at Statistics South Africa. The National Development Plan, the government’s 2012 economic blueprint co-authored by President Cyril Ramaphosa, targeted an annual growth rate of more than 5% for sustainable job creation.

South Africa’s economy is stuck in its longest downward cycle since World War II and hasn’t grown by more than 3% annually since 2012. That’s as a policy paralysis and weak business sentiment weigh on fixed investment spending, with private-sector companies wary to commit large sums of money to domestic projects. Gross fixed capital formation rose 0.9% from the first quarter.

Growth in household spending, which now accounts for about 63% of GDP, increased 0.5% in the second quarter. Data released Monday showed consumer confidence remains depressed and that temporary welfare measures, retrenchment and life insurance payouts are among the factors propping up household finances.

Poor sentiment among consumers and data that shows the economy is not yet “firing more consistently across all sectors” means the central bank is unlikely to raise borrowings this year, Montalto said. The bank’s monetary policy committee is due to announce its next interest-rate decision Sept. 23.

 

SA economy grows by 1.1% in Q1

By Siphelele Dludla for IOL

The South African economy grew by 1.1% in the first quarter of 2021, translating into an annualised growth rate of 4.6 percent, Statistics South Africa (Stats SA) reported on Tuesday.

However, the first quarter growth was lower than the revised 1.4 percent, or an annualised 5.8 percent, rise in real gross domestic product recorded in the fourth quarter of 2020.

Stats SA said economic activity has increased in line with easing lockdown restrictions in the period, with real GDP rising to R761 billion in the first quarter of 2021.

Despite this being the third-consecutive quarter of positive growth, Stats SA said the economy was 2.7 percent smaller than it was in the first quarter of 2020.

“This level is roughly comparable to what the economy was producing in the first quarter of 2016, and is 2.7 percent down from the R782 billion recorded in the first quarter of 2020.”

StatsSA said eight of the 10 industries recorded positive gains in the first quarter of 2021, with finance, mining and trade making the most significant contributions.

The finance, mining and trade industries were the main drivers of output on the production side of the economy, while household spending and changes in inventories helped spur growth on the expenditure side.

The mining industry had a positive quarter too with annualised growth of 18.1 percent, boosted by the production of platinum group metals, iron ore, gold and chromium.

Manufacturing output increased at an annualised rate of 1.6 percent, mostly driven by strong growth in the production of motor vehicles, parts and accessories and other transport equipment.

Stats SA said load shedding and a decline in the supply of water contributed to the contraction in the electricity, gas and water supply industry.

The agriculture, forestry and fishing industry also performed poorly in the first quarter in comparison with the previous quarter, dragged lower by weaker production figures for field crops and animal products.

 

Rand surges against the dollar

By Siphelele Dludla for IOL

The rand yesterday rose to a one-year high amid a subdued dollar in spite of rating agencies maintaining their junk status and negative outlook on South Africa’s sovereign debt.

The domestic currency strengthened 0.03 percent to R13.91 against the greenback by 5pm, its highest level since early January last year, on a positive growth forecast.

The South African Reserve Bank (SARB) last week upwardly revised its 2021 growth forecasts to 4.2 percent, from an earlier projection of 3.8 percent.

The rand appears to want to stay below the R14 mark around which it traded last week, despite an increase in global risk aversion.

Investec chief economist Annabel Bishop said the rand continued to benefit from the dollar’s weakness, as investors fear increasing interest rates in the US.

She said the rand was 5.6 percent stronger since the start of this year, leading several other emerging-markets currencies.

Bishop said South Africa would likely record a marked current account surplus in the first quarter of this year because of the boom in the commodity markets, which would boost the rand.

“Absent the global commodity price boom, the rand would not be seeing the degree of strength it has experienced this year against the US dollar,” Bishop said.

“And indeed, the second quarter looks set to record a current account surplus as well.”

On Friday, S&P Global Ratings and Fitch affirmed South Africa’s sovereign rating to sub-investment grade with a negative outlook because of rising government debt and low economic growth.

However, Fitch revised upwards South Africa’s economic growth, saying it would rebound to 4.3 percent this year supported by the base effect and the rise in commodity price, in line with the SARB forecast.

The SARB last week cited an upturn in near-term economic performance and improved public finances.

The bank also unanimously kept its benchmark repo rate unchanged at a record low of 3.5 percent as the Consumer Price Index rose 4.4 percent in April from a year ago on base effects.

Old Mutual Investment strategist Izaak Odendaal said although food inflation was at its highest level since mid-2017, the outlook was better.

 

By Siphelele Dludla for IOL

South Africa’s economy shrank by 7% last year compared to 0.2 percent growth in 2019 amid the devastating impact of Covid-19 and lockdown restrictions, Statistics SA said.

This is the most significant economic downturn in 75 years, but was not unexpected following months of economic slowdown due to lockdown restrictions.

’’If we explore the historical data, this is the biggest annual fall in economic activity the country has seen since at least 1946,” Stats SA said.

“The second biggest fall was recorded in 1992 when the economy contracted by 2.1 percent.

“At that time, the country was struggling through a two-year-long recession, mainly the result of a global economic downturn.”

Stats SA said the annual real gross domestic product (GDP) growth rate of -7 percent last year was primarily led by decreases in manufacturing, trade, catering and accommodation; and transport, storage and communication.

The agriculture, forestry and fishing industry, however, escaped the effects of the pandemic relatively unscathed, expanding production by 13.1 percent last year.

The government also grew marginally in the year, up by 0.7 percent.

Stats SA said expenditure on GDP also decreased by 7.1 percent last year as household final consumption expenditure decreased by 5.4 percent.

Meanwhile, the fourth quarter GDP recorded positive growth as economic activity resumed after lockdown restrictions were lifted.

Stats SA said GDP lifted by 1.5 percent in the fourth quarter of last year, giving an annualised growth rate of 6.3 percent, and easily beating market expectations of a 5 percent rise.

The largest positive contributors to growth were the manufacturing, trade and transport sectors.

The manufacturing industry increased at a rate of 21.1 percent in the fourth quarter, as nine of the 10 manufacturing divisions reported positive growth rates in the period.

Stats SA said expenditure on real GDP increased at an annualised rate of 6.5 percent in the fourth quarter of last year as household final consumption expenditure increased at a rate of 7.5 percent.

 

By Patrik Schowitz for South China Morning Post

Buoyant stock markets are ignoring near-term warning signals on the pandemic resurgence and instead focusing on upbeat Covid-19 vaccine expectations. While financial markets’ resilience has been remarkable in the short run, what about the long-run, real-world economic legacy of the pandemic?

Most important, perhaps, is how much the pandemic has carved into long-term economic growth. The main worry concerns so-called economic scarring or constraining future growth potential.

For instance, this could mean households and firms emerging from the pandemic are more cautious in their spending and consumption behaviour as well as possibly loaded down with debt. As a result, they will be prone to saving more and investing less. Further, some sectors of the economy hit hard by the pandemic may never fully recover with, for example, a good chunk of business travel likely forever replaced by video meetings.

Workers who lost their jobs in those hard-hit areas may take a long time to find new careers, and their livelihoods might be permanently damaged. Even workers in other economic areas might become less employable over time if they remain unemployed for too long.

Set against these negatives, there is the potentially positive impact of more rapid adoption of technological advances. The same video-calling technology hurting the travel business is making many peoples’ working lives more efficient, allowing them to collaborate remotely and do more work in a given day.

Further, a huge amount of stimulus was thrown at economies by central banks through rate cuts and asset purchases as well as by governments through monetary support to affected businesses and workers.

Together, these are speeding up economic recoveries compared to past recessions. This should help keep scarring to a minimum, although it’s too early to tell what the net impact of these factors will be.

Another area of concern is inflation. In the near to medium term, the risk of higher inflation seems contained. The many factors that have pushed inflation down during the last few decades will still be in play in the next three to five years.

These include rapidly advancing technology adoption in e-commerce and working from home pushing down prices, the retirement of ageing populations weighing on consumer demand and a large amount of spare economic capacity around the globe pushing down on wages.

However, look slightly further out and the balance of risks could shift. Rapid technological progress might be here to stay, but globalisation – another factor pushing down on prices – could well have peaked already.

The worst of the demographic trends will at some point be behind us, and economic slack might increasingly disappear in the face of continued economic stimulus to keep economies going in the post-pandemic world. This continued stimulus carries at least the risk of a rise in inflation if governments and central banks increasingly act in a coordinated fashion to try and deal with an elevated debt load.

There is another lasting legacy of Covid-19: a drastically increased debt load across both public and private sectors around the world. As a result of governments’ spending to support their economies, net government debt is set to rise to nearly 100 per cent of GDP in 2021 for the Group of 20 economies, from less than 80 per cent before the pandemic.

Similarly, private companies, which had already been running up debt loads during the last cycle, in many cases have had to take on more debt to survive.

The good news is that this has so far not led to further problems in funding markets, once central banks brought the initial panic during February and March under control. Still, the new high-debt reality will increase economies’ sensitivity to rising interest rates going forward, which is exactly why policymakers will be reluctant to let them rise too quickly or too soon.

Until fairly recently, economic orthodoxy held that high debt levels in and of themselves were a serious headwind for economic growth, related to the scarring argument above. This view is increasingly being challenged by economists, but it is hard not to be apprehensive about the impact on growth and inflation from here.

Even as the near-term path out of the Covid-19 crisis is materialising with the arrival of vaccines, the jury is still out on the longer-term consequences of the pandemic.

South Africa’s economy rebounds by 66.1% in Q3

Source: eNCA

The latest GDP data has just been released and as expected, the third quarter of this year saw a rebound after a major contraction in the second quarter.

The country’s gross domestic product saw an expected surge in growth between July and September this year.

It rose by an annualised rate of 66.1% after contracting by 51% during the lockdown in the prior three months.

Manufacturing, trade, and mining were the biggest drivers of growth as lockdown restrictions eased in the third quarter.

However, the recovery remains vulnerable, with power shortages and slow structural reforms likely to weigh on sentiment.

The country needs a growth rate of at least 5% to remedy its unemployment crisis.

But current projected growth for the year is expected to be -8%.

 

SA sheds 2.2-million jobs in the second quarter

By Lameez Omarjee for News24

South Africa shed 2.2-million jobs during the second quarter, according to Statistics South Africa (Stats SA).

While the employment figures reflected the largest decline in employment between the second and first quarter since 2008, Stats SA on Tuesday said unemployment fell substantially as well, decreasing by 2.8 million to 4.3 million. The official employment rate is now 23.3%, compared to the first quarter’s 30.1%.

Peter Attard Montalto, economist at Intellidex said that it is best to rely on the expanded definition of unemployment – which would see the rate between 42.6% and 52.7%, which is more realistic.

The expanded definition includes persons who were not employed when surveyed and were available to work but did not look for work either because they are discouraged from looking for work or did not look for work for other reasons other than discouragement.

Weighing in on the latest statistics, chief economist at the Bureau for Economic Research Hugo Pienaar explained that while the number of employed people declined by 2.2-million, the size of the labour force declined by much more – that is by 5 million. “This is why the unemployment rate came down.”

As to why the labour force declined, Pienaar explained that during the hard lockdown in April, people were not allowed to leave their homes unless they were considered essential workers or to buy food. “You were not allowed to go out and look for a job if you were unemployed at that stage,” he said. Millions less people were actively searching for a job and this resulted in a large decline in the labour force, he said.

“This is temporary. In the third quarter, with the economy opening up again, people can look for work again. The labour force will increase again, I imagine quite dramatically,” he added.

Economists had anticipated record high unemployment, due to poor economic conditions. Nearly a million job losses were projected for the single quarter – this matches the job losses in the 12 months following the global financial crisis, Fin24 previously reported. Investec had forecasted an unemployment rate of 37.9%.

Government had implemented a nationwide lockdown in March in order to slow the spread of Covid-19. During April, only essential goods and services were operational and economic activity was limited with lockdown restrictions at their highest level. As a result GDP contracted by 51%, on a quarter-on-quarter, annualised basis. Non-annualised, the contraction was 16.4%.

In its September quarterly bulletin, released on Tuesday, the Reserve Bank noted that the lockdown had brought about logistical complications for Stats SA – contributing to the delay of the release of the employment data.

“The number of unemployed South Africans had already increased significantly in the year to the first quarter of 2020 due to a surge in the number of new and re-entrants into the labour market who failed to find employment.

“The official unemployment rate increased to a record high of 30.1% in the first quarter of 2020, reflecting the impact of the economic recession that had already started in the third quarter of 2019,” the bulletin read.

Stats SA said that it had to change the mode of collection of data to adapt to Covid-19 safety protocols.

“Given the change in the survey mode of collection and the fact that Q2: 2020 estimates are not based on a full sample, comparisons with previous quarters should be made with caution,” Stats SA said.

In an emailed response to questions from Fin24, Stats SA said data is usually collected from April to June. But due to a change in data collection from face-to-face to Computer Assisted Telephone Interviewing, it was delayed for planning and the training of field workers between April and mid-May. The data was collected from 14 May to 30 June 2020.

Stats SA noted that the usual sample size for the survey is 30 000 but not all sampled dwelling units had contact numbers and the data for this survey was collected from 17 345 dwelling units.

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