By Anneken Tappe for CNN
The Covid-19 pandemic and subsequent lockdown measures have thrown the world economy in turmoil. Even as countries are reopening, the World Bank predicts this year, the globe will have its deepest global recession in 80 years.
The pandemic, which has infected some seven million people worldwide, led countries to order citizens to stay at home and business to grind to a halt.
Worldwide gross domestic product — the broadest measure of economic growth — will contract 5.2% in 2020, according to a report by the World Bank. That’s despite the unprecedented fiscal and monetary policy support governments around the world have been rolling out. Trillions of dollars have been deployed to help companies stay in business, keep cash in consumers wallets and let financial markets function properly.
Still, advanced economies, such as the United States or Europe, are projected to shrink by 7%. America’s economy is expected to contract by 6.1% before rebounding in 2021.
This quarter will almost certainly be the worst for the Western world, but most of Asia felt the brunt of the outbreak in the first months of the year.
China, the world’s second largest economy, is projected to grow 1% this year, down from 6.1% in 2019, before bouncing back.
The pandemic recession will probably leave deep scars: Investments will stay lower in the near term, and global trade and supply chains will erode to some extent. On top of that, millions of people have been laid off, causing the biggest blow to America’s labor market since the Great Depression. The US Federal Reserve has stressed its concern about laid-off workers getting detached from the labor force as a result of the crisis.
The recession would be even worse if it took longer than expected to bring the pandemic under control, or if financial stress forced a number of companies into bankruptcy.
On Monday, a monthly survey from the American National Association of Business Economics found that a second wave of infections was the biggest risk to the US economy.
Emerging economies are in particular danger, because their health care systems are less resilient and they are more exposed to woes in the global economy through supply chains, tourism and reliance on commodity and financial markets, the World Bank report said.
At the same time, low oil prices, which collapsed in April, could help jump starting the economy in the initial stages of reopening, the World Bank acknowledged.
The rand has staged a remarkable recovery, gaining almost 200c against the dollar. It has bounced back from R19/$ in April to R16,61 as of Tuesday.
Here are five drivers pushing the rand from Covid-19 doldrums:
- Quantitative easing – this occurs where central banks introduce new money into the money supply chain to support an economy. There has been a large volume of QE pumped into the system, which has seen financial markets increasingly look to invest into higher yielding assets, and with emerging market portfolio assets gaining from this investment flow, so emerging market currencies continue to strengthen substantially, she said.
- US dollar weakness – the greenback is on the back foot currently and emerging market currencies like the rand are benefiting from the weakness.
- Attractive yields – the rand is still attractive to yield-seekers. Many developed markets in the world have interest rates at zero or close to zero, investors worldwide are seeking yield. Despite our recent interest rate cuts, South Africa still offers some yield, which has helped the ZAR as the risk sentiment returned.
- Positive moves on all the major equity indices – markets priced in a post-Covid-19 recovery have spurred on emerging market currencies, including the rand. As a commodity currency, the rand also benefited from strong metals prices. Commodity currencies are up by around 4% month-on-month, which show greater gains over June to date than in May.
- Improving global financial market sentiment – the market is positive on prospects for global economic recovery.
By Sibongile Khumalo for News24
The South African economy shrank by 1.4% in the fourth quarter of 2019, according to new Gross Domestic Product numbers, released by Statistics SA on Tuesday.
This followed a contraction of 0.8% in the third quarter, which means that the economy was in recession for the last half of 2019. South Africa last entered a recession – when the GDP falls for two consecutive quarters – in the second quarter of 2018. This is South Africa’s third recession since 1994.
For the whole of 2019, the South African economy grew by only 0.2% (in real terms). In 2018, it saw growth of only 0.8%.
The fourth-quarter decline is larger than economists had predicted, as the economy battles the fallout of load shedding.
Seven out of 10 industries contracted in the fourth quarter, with agriculture (-7.6%) taking the biggest hit.
The manufacturing industry shrank 1.8% in the fourth quarter, while the transport, storage and communication industry saw a decline of 7.2%.
Stats SA reports that household spending increased by 1.4% in the final quarter of 2019, but spending on clothing and footwear was up by 8.5%.
The weak growth is likely to add more woes to President Cyril Ramaphosa’s government, as the economy under his leadership continues to suffer, amid internal and external pressures.
By Lameez Omarjee for Fin24
The SA economy has officially emerged from recession, Stats SA announced on Tuesday morning, following a 2.2% rise in GDP growth for the third quarter of the year.
The economic growth figures were broadly in line with the expectations of economists surveyed by Fin24 prior to publication, who had projected growth rates of between 0.8 and 2.6%.
The rand firmed by as much as 1% shortly after the release of the results.
However, despite the rebound, economists still expect overall GDP growth for the year to be weak, below 1%.
Here’s what boosted growth in the third quarter:
1. Manufacturing industry expands
Growth was mainly driven by the secondary sector, which grew by 4.5%. This was aided by a 7.5% increase in manufacturing. Large contributions came from steel and metals, and motor vehicle production, among other things.
2. Agriculture rebounds
Even though the primary sector contracted by 5.4% in the quarter – mainly due to a large drop in mining – the agriculture industry rebounded following two quarters of substantial contractions.
During the third quarter, increased production in field crops, horticultural and animal products, helped improve growth to 6.5%.
Earlier on Tuesday, Bloomberg reported that confidence in the industry had declined to its lowest in nine years. The agribusiness confidence index dropped from 48 to 42, mainly due to concerns over weather conditions and a lack of clarity on land reform policy.
3. Transport industry rebounds
The tertiary sector grew by 2.6% during the quarter. The transport, storage and communication industry in particular expanded by 5.7%, rebounding from a -4.9% contraction in the second quarter and improving from 0.9% growth reported in the first quarter.
4. Finance, real estate and business services continue growth trend
Also within the tertiary sector, the finance, real estate and business services industry continued its growth trend, increasing by 2.3% during the quarter.
Additionally, the trade industry – particularly wholesale, retail and food and beverages – and catering and accommodation increased by 3.2%.
5. Expenditure-led growth
Expenditure GDP grew to 2.3%, following a decline of -2.6% and -0.7% reported in the first and second quarters respectively. Government expenditure grew by 2.2%, while household expenditure grew by 1.6%.
However, gross-fixed capital formation declined -5.1% during the quarter, largely due to a decline in investment in construction works, transport equipment and residential buildings, according to the StatsSA report.
The purchasing power of South African households’ net wealth increased by R60.2bn over the period from the end of the first quarter of 2018 to the end of the second quarter despite the economy slumping into recession.
This is one of the findings of the Momentum-Unisa Household New Wealth Index.
The main reason for this improvement is given as an increase of R46.5bn in the real value of households’ assets. At the same time, the real value of households’ liabilities – mostly outstanding debt – decreased by R13.7bn.
The real value of household net wealth is obtained by subtracting the real value of their liabilities – mostly their outstanding credit and other debts – from the real value of their assets – mostly of the real values of their retirement funds, financial investments and residential properties.
The real value of household assets was boosted by an increase in the real value of households’ investments – specifically in retirement funds – which benefitted from an increase in share prices of the resources sector in particular.
These share prices received support from the rand exchange rate, which depreciated by almost 14% against the dollar over the period, offsetting declining commodity prices.
The real value of households’ residential assets did not receive much support over the quarter. House prices contracted in real terms, while real investments in the residential sector also declined.
According to FNB’s House Price Index, real house prices was 0.5% lower compared to a year ago, and virtually unchanged compared to the first quarter of 2018.
Furthermore, real fixed capital formation in the residential sector contracted by 6.5% in the second quarter of 2018 compared to the first quarter.
“The weak state of the economy and in consumer finances, as well as uncertainty about land reform, are factors that combined to the weak performance of real household residential assets,” says the report.
Households’ outstanding liabilities continued to increase at a slower pace than household consumption expenditure inflation.
This situation – whereby outstanding household debt increases at a slower pace than inflation – is indicative of consumer finances being under pressure, according to the report.
The report predicts that preliminary estimates point to a decline in the real value of household assets during the third quarter of 2018 as share prices tumbled over this quarter, while real house price growth remained negative.
The business cycle in South Africa, where the economy entered its first recession in almost a decade in the second quarter, is in its longest downward phase since records started in 1945.
It entered a 58th straight month of declines in September, central bank data showed Tuesday.
The regulator monitors about 200 indicators representing economic processes such as production, sales, employment and prices to determine the direction of the trend.
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
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
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