Tag: economy

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.

South Africa is in deep financial trouble

Source: MyBroadband

The South African government is spending nearly R50-billion a month more than what it collects in taxes – and the situation is getting worse.

This is the warning from economist Mike Schussler, who said rapidly-increasing government debt is creating a “very, very deep hole”.

Speaking to eNCA, Schussler said the government’s budget reveals that the country is heading to a deficit of between R60 billion and R65 billion per month.

“This means we are spending R2 billion per day more than what we get in income from taxes,” he said.

Schussler said that while COVID-19 and the lockdown has aggravated the situation, the country was already running at a big deficit before the pandemic hit.

The projected deficit for this year was expected to be around R325 billion, but the pandemic has pushed this up to between R710 billion and R800-billion.

The higher deficit is a result of lower tax collection – which is expected to be down by around R313 billion – and higher spending on grants, hospitals, and other COVID-19 related matters.

Schussler said the lower tax collections are also partly a result of the cigarette and alcohol ban, people driving less, people losing their jobs, and lower consumer spending.

Filling the hole
The combination of lower tax collections and higher government spending is resulting in a big debt burden for South Africa.

To fill this hole, the government has to borrow money – which comes at a higher cost because of the country’s recent credit rating downgrades.

“Because of the downgrades our debt is becoming more and more expensive,” said Schussler.

An IMF loan of around R70 billion covers 10% of the expected deficit, which comes at a low interest rate.

This gives the country some breathing room, but big spending cuts and tax increases are still required to make up this deficit.

Even with the loans from the New Development Bank and African Development Bank, the country will still have to raise a lot more money to cover the growing deficit.

“We will have to go back to the IMF, we will have to look at our pension funds, and we most likely have to enter the international markets again,” said Schussler.

“We are in very, very deep financial trouble in the next few years. It is a very difficult hole to get out of.”

The chart below, published by Schussler, shows the government’s monthly budget deficit in recent years.

Source: Supermarket & Retailer 

More than 1 400 staff members at Pick n Pay have taken voluntary severance packages since March, the retailer has said in a trading update.

The Cape Town-based group’s voluntary severance programme (VSP) offers staff 1.5 weeks of pay per completed year of service, plus four weeks of notice pay.

According to the group, its objective is to reduce employee costs.

The group said the cost of the compensation payments to departing employees will be borne in the first half of the current financial year.

Pick n Pay said it expects the programme to be cost neutral for the full financial year, as compensation packages will be fully recouped through cost savings.

“In subsequent years, the reduction in employee numbers will have a positive impact on the operating costs of the group. Alongside other strategic actions designed to improve the Group’s performance, the VSP is a major step forward in making the business more competitive and more sustainable” the update read.

The group is projecting that its headline earnings per share for the 26 weeks to end August 2020 will be down by more than 50% as it grapples with the effects of Covid-19 on its business. This excludes the impact from hyperinflation accounting in Zimbabwe.

“I want shareholders to understand and be reassured that the impact on our first-half earnings that we are announcing today derives solely from the specific circumstances of the pandemic, the impact of measures taken by government and ourselves to mitigate it, and the once-off costs of our VSP which has made the Group leaner and more competitive,”said Richard Brasher, CEO of Pick n Pay, in the statement.

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