South African Property Forecast April 2010
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Transcript of South African Property Forecast April 2010
Economics South Africa: Macroeconomic perspectives 13 April 2010
Goolam Ballim Johan Botha Shireen Darmalingam Jeremy Stevens Danelee van Dyk
Forecasts
2005 a 2006
a 2007
a 2008
a 2009
a 2010
f 2011
f 2012
f
Growth data
GDP (% y/y) 5.3 5.6 5.5 3.7 -1.8 2.9 3.7 4.1
Final consumption expenditure by households – FCEH (% y/y)
6.1 8.3 5.5 2.4 -3.1 2.4 3.6 4.3
Gross fixed capital formation – GFCF (% y/y)
11.0 12.1 14.2 11.7 2.3 2.0 4.1 4.5
Current account balance (% of GDP) -3.5 -5.3 -7.2 -7.1 -4.0 -3.7 -3.9 -4.1
Inflation data
Headline CPI1 (% y/y) annual average 3.4 4.6 7.1 11.5 7.1 5.2 5.4 5.5
PPI (% y/y) annual average 3.6 7.6 10.9 14.2 0.2 6.6 6.5 7.2
Prime rates
Prime (year end) 10.50 12.50 14.50 15.00 10.50 10.00 11.50 11.50
Prime (average) 10.60 11.20 13.08 15.13 11.81 10.12 10.94 11.50
Exchange rates
$/R (average) 6.33 6.77 7.05 8.22 8.42 7.67 7.86 8.00
£/R (average) 11.50 12.51 14.09 15.06 13.10 12.03 13.05 13.20
R/¥ (average) 17.44 17.30 16.77 12.48 11.25 11.45 12.26 13.13
€/R (average) 7.83 8.52 9.71 12.01 11.67 10.49 10.80 10.80
a=actual
f=forecast
2
Exchange rate forecast
Quarterly averages Q2 2010 Q3 2010 Q4 2010 Q1 2011 12-month trading range
EUR/USD 1.350 1.366 1.398 1.390 1.30 – 1.60
GBP/USD 1.522 1.571 1.613 1.678 1.40 – 1.90
USD/JPY 88.00 86.00 87.00 85.00 80.0 – 105.0
USD/ZAR 7.450 7.850 8.138 8.250 6.80 – 8.50
EUR/ZAR 10.058 10.723 11.376 11.468 8.84 – 13.60
GBP/ZAR 11.342 12.328 13.124 13.842 9.52 – 16.15
ZAR/JPY 11.812 10.955 10.691 10.303 10.00 – 12.35
Consumer inflation Prime rate forecasts
Headline CPI - % y/y Last prime rate change: 26 March 2010
2010 2011 2007 2008 2009 2010 2011
January 6.2 a 5.5 12.50
a 14.50
a 15.00
a 10.50
a 10.00
February 5.7 a 5.5 12.50
a 14.50
a 14.00
a 10.50
a 10.00
March 5.1 5.5 12.50 a 14.50
a 13.00
a 10.00
a 10.50
April 5.0 5.4 12.50 a 15.00
a 12.00
a 10.00 10.50
May 4.9 5.4 12.50 a 15.00
a 11.00
a 10.00 11.00
June 4.9 5.3 13.00 a 15.50
a 11.00
a 10.00 11.00
July 5.1 5.2 13.00 a 15.50
a 11.00
a 10.00 11.50
August 5.2 5.1 13.50 a 15.50
a 10.50
a 10.00 11.50
September 5.0 5.3 13.50 a 15.50
a 10.50
a 10.00 11.50
October 5.1 5.4 14.00 a 15.50
a 10.50
a 10.00 11.50
November 5.2 5.4 14.00 a 15.50
a 10.50
a 10.00 11.50
December 5.2 5.4 14.50 a 15.00
a 10.50
a 10.00 11.50
Average 5.2 5.4
Low 4.9 5.1
High 6.2 5.5
3
Introduction
Macroeconomic newsflow has finally begun to reflect genuine
improvements in broad economic health. However, the data remain
consistent with a somewhat anaemic recovery in advanced economies.
Investor sentiment, which has been buoyed by growing global business
and consumer confidence, realised that as the economic recovery
gains a foothold, paradoxically, the forces driving the recovery – cheap
government funding and low interest rates – will inevitably be reversed.
The first-quarter earnings’ reporting season, which begins this month,
will shed light on the financial health of the private sector. Against this
uncertain background, sovereign debt vulnerabilities continue to muddy
the broader outlook. Simultaneously, China is in the process of
gradually de-pegging its currency from the US dollar.
International economy
A number of data points are suggesting that the economic recovery of
the United States (US) is relatively sound. The Institute of Supply
Management (ISM) manufacturing index has significantly surpassed
pre-Lehman collapse levels, reaching 59.6 in March. Meanwhile, the
ISM non-manufacturing index increased from 53 in February to a three-
year high of 55.4 in March. Hence, to some extent the recovery is
spreading beyond the export-orientated manufacturing sector.
Financial markets responded particularly positively to the gain of
162 000 non-agriculture jobs in March. Not only is the addition a
dramatic improvement from the 14 000 decline experienced in
February, but it is an even more dramatic improvement considering the
average 700 000 jobs lost each month in 2009. That said, 48 000 of
the positions were temporary hires linked to the US census.
The Federal Reserve (Fed) chairman, Ben Bernanke, recently stressed
that the unemployment rate of 9.7% remains a serious concern –
especially given the large share that has been out of the labour force
for more than six months. While labour shedding has clearly slowed
(perhaps even halted), hiring is likely to remain weak throughout the
year, containing economic activity over the near term.
The housing market has shown few signs of meaningful recovery.
Granted, the 7.8% month-on month (m/m) fall in the pending home
sales index during January was reversed by the 8.2% m/m increase in
February. However, the figures remain depressed relative to pre-crisis
levels.
Perhaps of most concern is the fact that the important drivers of the
recovery are wilting.
First, re-stocking is in all likelihood complete, meaning the
strength of underlying demand matters most looking ahead.
Second, broad access to cheap government funds has become
unsustainable and is likely to end soon. Similarly, improving
economic data and increasing prices at the factory gate indicate
that keeping the Fed Funds Rate at “excessively low levels for an
extended period of time” is likely to cease at year-end.
Ben Bernanke unambiguously warned that the arithmetic is simple: To
avoid large and sustained budget deficits, the nation will ultimately
have to choose among higher taxes, modifications to entitlement
programme, less spending or some combination of the above.
Treasury yields, which serve as the benchmark for lending, are already
trending higher. Worryingly, the removal of these vital stimulants could
undermine the economic recovery, given that the ability of genuine
demand to take over the reins is, at a minimum, questionable.
Expect a relatively tepid economic growth profile. The Organisation for
Economic Co-operation and Development (OECD) seemingly agrees,
forecasting that the US gross domestic product (GDP) will expand by
2.4% y/y and 2.3% y/y in the first two quarters of 2010, which is
significantly slower than the 5.6% y/y enjoyed in the final quarter of last
year. Clearly, higher borrowing costs for consumers and corporates,
plus rising interest on government debt will prove difficult to ignore.
The Euro-zone is facing even more difficult and complex challenges.
The Euro-zone’s economic recovery spluttered at the tail-end of last
year. Euro-zone GDP was static in the last three months of 2009,
translating into a 2.2% y/y contraction for the year. The relatively poor
performance illuminates the fundamental weakness in domestic
demand across continental Europe. The perilous position was further
exacerbated by the withdrawal of government support, which began at
the tail-end of last year. The situation was further compounded by poor
weather in Northern Europe during the first months of 2010, which will
inevitably provide a headwind to the Q1 2010 growth print.
The European Central Bank (ECB) left official interest rates on hold in
April and left its unconventional liquidity-supportive policies intact. The
decision reflects the sombre assessment of the Euro-zone economic
prognosis.
Promisingly, much like the US, some recent macroeconomic newsflow
has bolstered sentiment. In fact, the Euro-zone’s Purchasing
Managers’ Index (PMI), having found support from a softer euro and
improved external environment, increased from 53.7 in February to
55.9 in March – the largest monthly gain in nearly three years.
Unfortunately, Germany experienced stagnation in industrial production
(in month-on-month terms) in both January and February. Worryingly,
the manufacturing sector – specifically Germany’s – is essential for the
Euro-zone’s economic recovery given the weakness in the household
sector. Consider that Euro-zone retail sales, having declined by 0.2%
m/m in January, contracted by 0.6% m/m in February.
4
Figure 1: German industrial production
Source: Bloomberg
The sovereign debt vulnerabilities of most Euro-zone nations are
holding continental Europe’s economic vista hostage. Most
prominently, Greece’s, but also Spain and Portugal’s, fiscal
vulnerabilities have sapped the swagger out of any positive
macroeconomic news.
The generalised appreciation of Greece’s fiscal challenges and the
insecurity are best articulated by the spread between the Greek 10-
year bond and the German 10-year Bund, which increased by 100
basis points in less than a month, surpassing 4.5% in April. The spread
is currently at its widest since Greece joined the Euro-zone.
Figure 2: Spread between Greek and German 10-yr government
bonds
Source: Bloomberg
Over the past month, the Euro-zone members have committed funding
support to the Greek government. Using seemingly similar logic to that
used when the then Treasury Secretary, Hank Paulsen, faced a severe
freeze in US repo markets, the government’s re-assurance was meant
to be sufficient to divert disaster and enable market rates to normalise
without an actual intervention. However, as in the case of the US repo
market, the guarantee has done little to alleviate uncertainty. Recall the
old adage: if you have to defend your credibility, your credibility is
already gone.
Most worrying, the support package failed to provide an interest rate
ceiling, meaning the funding was likely to be priced at market rates,
which are elevated. Given that Greece’s debt burden is expected to
breach 120% of GDP this year and trend towards 150% by 2015, the
sheer size of the borrowing requirement and the elevated repayment
costs fuel the risk of Greece’s default. Fitch Ratings Agency
downgraded the outlook of both foreign and domestic long-term
currency ratings to negative. In light of the higher costs, the ECB’s
president, Jean-Claude Trichet, is encouraging Greece to pursue
bilateral loans, which could come with a lower repayment cost.
However, by mid-April, a number of proposals were under discussion,
aiming to provide clarification of the terms attached to the funds that
Greece can access in emergency.
The fiscal troubles facing Greece are not confined to Greece;
elsewhere, Portugal and Spain have recently seen their 10-year bonds
spike at 4.33% and 3.89%, respectively. The deterioration of fiscal
positions across the developed world has proven so severe that deficit
reduction initiatives will impinge on economic growth. Recognising the
inevitable fiscal tightening across the region, economic growth will
prove sluggish and interest rates will remain on hold throughout 2010.
The United Kingdom’s (UK) Monetary Policy Committee (MPC) held
interest rates steady in early April. Given the consensus, which
suggests that UK inflation will weigh in at 1.3% in 2010 and remain
below 2% in 2011, the possibility of an additional rate cut cannot be
excluded. However, the MPC is still trying to determine the full impact
of the USD300 bn of asset purchases made under the quantitative
easing programme.
In the UK, election campaigning began in the first week of April as the
general election will occur on 6 May 2010. Predictably, the discussions
immediately focused on how to resolve the nation’s fiscal position,
which is currently at a post-war high of 11.8% of GDP. At this juncture,
the Gordon Brown-led Labour Party is trailing in the polls to David
Cameron’s Conservative Party. However, as the economic recovery
gains momentum, the tide will gradually turn in favour of the Labour
Party. Hence, the Q1 2010 growth print and other macroeconomic
news could shape the election results.
GDP growth in Q4 2009 was upwardly revised from 0.3% to 0.4%. In
addition, some survey indicators are pointing to stronger growth in Q1
2010. Furthermore, while industrial production contracted by 0.1% y/y
in February, the figure is a dramatic improvement from the -3.8% y/y
and -1.6% y/y recorded in December and January, respectively.
Moreover, the Halifax house price index, after declining by a
seasonally adjusted 1.6% m/m in February, increased by a seasonally
adjusted 1.1% m/m in March, implying that last month’s decline was
merely a stumble in a positive trend. Meanwhile the three-month
moving average increased from 4.5% y/y in February to a 27-month
high of 5.2% y/y in March.
Most commodity prices have already returned to the levels that
prevailed before the financial crisis. Growing optimism about the
sustainability of the global recovery in emerging markets – led by
China, India and Brazil – has proven supportive. Adding to the tailwind,
speculators anticipating commodity demand growth in 2011, when the
global economic activity is uniformly positive, have also played their
part in pushing commodity prices higher.
-25
-20
-15
-10
-5
0
5
10
15
-8
-6
-4
-2
0
2
4
2002 2004 2006 2008
Per
cen
t
Per
cen
t
m/m (LHS) y/y (RHS)
3.5
4.5
5.5
6.5
7.5
0.0
1.0
2.0
3.0
4.0
5.0
2006 2007 2008 2009
Greece vs. German Spread (LHS)Greece yield (RHS)
Percentage points
5
Figure 3: Commodity prices broadly trending higher
Source: Bloomberg
Furthermore, China is in the process of gradually de-pegging its
currency from the US dollar, which has also proved supportive for
commodity prices. Recall, commodity prices are typically inversely
related to the US dollar. Last month, the People’s Bank of China’s
chairman stated that the dollar-peg would end sooner or later.
Furthermore, it is widely accepted that China’s policy makers are trying
to curb bank lending and inflation; both goals will benefit from a
stronger Renminbi. Already, discussions of widening the daily trading
range of the Renminbi are being held. At present, the Renminbi is
allowed to move within a range of 0.3% either side of a fixed exchange
rate to the US dollar, limiting the rate of adjustment. Perhaps
anticipating the change in tides, US Treasury Secretary Timothy
Giethner decided to postpone a report scheduled for mid-April that
would have had to make an unambiguous classification of whether or
not China is a “currency manipulator”.
Once more it is worth stressing that currency appreciation will fail to
prove to be the silver bullet to global imbalances. For a start, a large
share of the value of China’s final exports is originally imported from
elsewhere. In an extreme example, the Sloan Foundation estimates
that a mere USD4 (less than 3%) of the final value of an iPod
assembled and exported from China is organically produced in China.
Unsurprisingly, China’s surplus with the US falls by 30% if only the
value-added components are included. In contrast, Japan’s surplus
expands by 25%. More broadly, lower tariff barriers and transport costs
have enabled a larger share of the value of a nation’s exports to
originate from elsewhere. Therefore, a stronger currency will make
imports cheaper.
Figure 4: Share of export value-added originating from elsewhere
Source: OECD
South Africa
The extent of economic slack is reducing with the recent, albeit slow,
improvement in spending levels of households. Evidence is gathering
that the middle-income mass market is freeing itself up from its
overextended debt positions, providing early signs of a self-sustaining
recovery in economic activity.
Detailed breakdown of the expenditure approach to GDP
Household demand:
Household consumption expenditure rose by an annualised
quarterly rate of 1.4% in 2009 Q4 – the first increase in six
quarters – driven by advances in durable goods (15.2%) and
services (1.1%). The rate of decline in non-durable and semi-
durable goods slowed significantly in the quarter to below a 1%
contraction, from high single-digit declines in previous quarters.
Consumer confidence more than doubled in Q1 this year to 15
index points from 6 index points in 2009 Q4. The recovery was
largely driven by increased optimism among middle-income
earners, which have lagged other income cohorts owing to their
comparatively high levels of indebtedness.
Households have become less pessimistic over the
appropriateness of the current time to purchase durable goods
and have become increasingly optimistic over expected
economic conditions and the state of their own finances in 12
months’ time.
Increasing evidence of deleveraging is being obtained as
households’ savings as a ratio to disposable income improved
to -0.1% in Q4 from -0.4% in Q3 last year. This comes despite
evidence that household debt as a ratio to income rose to
79.8% in Q4 from 78.4% in Q3; the rise was spurred by a
decline in the growth rate of nominal household income relative
to Q3, as inflation is receding.
Excluding the impact of inflation, real disposable income grew
by a quarterly annualised rate of 2.7% in Q4, on the back of
rising compensation to workers when compared to the previous
year. This signals that household demand will become stronger
0
50
100
150
200
250
300
2007 2008 2009 2010Gold Copper Tin Nickel Lead
Index Jan 2007=100
5 10 15 20 25 30 35
Spain
Italy
China
Germany
France
US
Japan
Brazil
Per cent
2005 1995
6
within the next few months, reining in the sluggishness of retail
sales growth over the past few months.
Figure 5: Household consumption expenditure on goods and
services
Source: SARB
New passenger car sales rose by 16.5% y/y in Q1 from -10.5%
y/y in Q4 last year. New motor sales are expected to rise by
between 12% and 18% this year, following -23.8% y/y in 2009.
House price growth has also recovered, albeit belatedly,
increasing to 0.5% y/y in March – the first time since early 2008 –
following a decline of -1.9% y/y in February. Nominal house price
growth of between 5% and 10% is expected this year, from
-4.2% in 2009.
Figure 6: Household consumption expenditure, house price and
vehicle sales’ growth
Sources: NAAMSA, SARB, Standard Bank Group
Household earnings’ potential:
A swift recovery in several industries has seen rising wage
demands from labour unions of up to 20% in the metals industry.
Wage growth may be rigid on the downside this year, which,
together with a more benign inflation profile averaging 5.2% in
2010, could see real wage gains of up to four percentage points.
Figure 7: Household real income growth inversely related to
inflation
Sources: SARB, Stats SA, Standard Bank Group
The better-than-expected Q4 figures, the recent rate cut and
more benign inflation profile support the revision in household
consumption expenditure growth to 2.4% this year (previously
2%).
Gross fixed capital formation:
Private sector capital formation declined by a less-than-expected
quarterly annualised growth rate of 2.3% in Q4 from -14.5% in
Q3. This together with an improved profit prognosis in the mining
industry on the back of rising commodity prices and rising
business confidence in select manufacturing industries could see
a slower rate of decline in private sector investment this year.
This has been corroborated by improved commercial vehicle
sales’ statistics; particularly of light and extra heavy vehicles,
which are up 10% y/y and 13% y/y, respectively, in Q1. We
anticipate a milder contraction of 1.7% this year, from -7% y/y in
2009.
Figure 8: Fixed capital formation by type of organisation
Source: SARB
Confirmation of parastatals’ project continuity will see the
contribution to fixed capital formation remaining strong, however
with the rate of growth slowing down from last year’s 40.7%
growth.
-20
-10
0
10
20
30
2000 2002 2004 2006 2008
Semi-durables Durables
Non-durables Services
% y/y
-30
-15
0
15
30
45
-10
-5
0
5
10
15
2000 2002 2004 2006 2008 2010
Household consumption expenditureCar sales (RHS)House price growth (RHS)
% q/q annualised % y/y
2
5
8
11
14
17-9
-6
-3
0
3
6
9
12
2000 2002 2004 2006 2008 2010Real disposable income (LHS - inverse scale)
Targeted inflation (CPIX to '08, CPI from '09)
% q/q annualised %
-40
0
40
80
-24
0
24
48
2000 2002 2004 2006 2008
Private business enterprises (58.1% of total)
General government (15.6% of total) - smoothed
Public corporations (26.2% of total) - smoothed (RHS)
% q/q annualised % q/q annualised
7
Table 1: Average annual public spending on infrastructure from
2010/11 to 2012/13
General
government
State-owned entities
Public-private partner-ships
Annual value R132.6 bn R144.8 bn R9.1 bn
Share of total spend
43% 53% 3%
Nominal growth
13% 8% -19.8
Source: SA National Treasury
Given the improved prognosis for private sector investment
participation, bolstered by the recent rate cut, we have raised our
forecast for real capital formation to 2% this year (previously
1.3%).
Net exports:
Sustained positive income growth in our major trading partner
countries supports a relatively improved outlook for exports this
year, which is critical in light of the rand’s sustained strength. We
deem strong global growth as the chief driver of export volumes,
despite the rand’s strength.
Commodity bias in SA’s export basket, together with rising
commodity prices, should ensure that terms of trade remain
supportive of the trade balance. Export volumes are supported
by strong growth in Asia.
With capital goods accounting for 50% of the import basket,
imports should remain sluggish until a broad-based recovery in
the economy unfolds. Capital and machinery-based imports will
remain limited to parastatals’ infrastructure programmes as
private sector imports are likely to improve during 2010 H2.
Inventory building probably only accounts for a quarter to a third
of the import basket.
As such, these trends generally support mildly positive to mildly
negative trade balances, with more substantial deficits likely from
2010 H2.
Figure 9: Trade volumes and price indices
Source: SARB
Detailed breakdown of the production approach to GDP
Mining and quarrying sector (4.6% of GDP; 6% of formal non-
agricultural employment):
Current performance: In February, mining output rose by 5.8%
y/y from 9.7% y/y in January, supported by diamond output
(149.2% y/y), chromium ore production (123.4% y/y),
manganese ore (64.6% y/y) and nickel output (58.4% y/y).
Top contributors to growth: Platinum group metals, nickel,
diamonds, iron ore and copper.
Emerging trends: Rising commodity prices, especially copper,
could see mines tap into old lower grade ores, which may raise
input costs. Investment interest in coal and copper continues to
dominate.
Risks: Dollar prices of input costs, for example, oil and steel, are
rising. Sustained rand appreciation will hurt export earnings;
however, the sector remains supported by low rand-denominated
domestic input costs. Following delayed maintenance during the
recession, mines are refocusing on these tasks, but output
growth could subsequently be sluggish. Recovery may stimulate
job creation, but skills remain in short supply. Mines have
expressed concerns over future water supply security and some
have placed investment on hold owing to electricity cost and the
supply crisis.
Table 2: Share of top mining exports
2004 2006 2008
Platinum group metals 26% 27% 27%
Gold and uranium ore 37% 28% 25%
Coal and lignite 17% 16% 15%
Source: Department of Trade and Industry
Figure 10: Mining Gross Value Added (GVA) vs employment
Sources: SARB, Stats SA
The mining sector reported a decrease of 33 000 jobs in 2009
Q4 compared to 2008 Q4. However, relative to Q3, the sector
shed a smaller 2 000 jobs, which is markedly lower than the
18 000 jobs shed in Q1. In total, 114 000 jobs were lost in 2009,
reversing total jobs created between 2007 Q4 and 2008 Q4.
50
70
90
110
130
150
170
190
2000 2002 2004 2006 2008
Volume of exports Prices of exportsVolume of imports Prices of imports
Index (2000=100)
350
390
430
470
510
550
-40
-30
-20
-10
0
10
20
30
2000 2002 2004 2006 2008 2010
Employment (RHS) Mining and quarrying
% q/q annualised Number '000
8
Manufacturing sector (14.4% of GDP; 14.8% of formal non-
agricultural employment):
Current performance: Output growth eased to 2.7% y/y in
February from 3.5% in January, with export-related industries,
automotive industries, iron and steel, and metals and machinery
supporting growth.
Top contributors to growth: Output of motor vehicles and
accessories, basic iron and steel products, and chemicals and
plastic products.
Emerging trends: New orders remain lively, but manufacturers
may be hesitant to bolster inventories in fear of faltering demand.
Optimism over future business expectations a year from now
remains firm, and has supported employment creation of late.
Increasing evidence is obtained that consumer-related sectors
are scaling up production. Historically, consumer-goods-
producing output has recovered six months following sustained
interest rate stimulus.
Risks: Despite firm long-term business expectations, current
business confidence remains low despite recent recovery in
output. The rand is denting optimism in export and import-
competing markets. Input costs are rising at a faster pace than
selling prices, keeping profits capped. This may prevent rising
capacity utilisation rates and delay investment prospects.
Figure 11: Manufacturing GVA vs employment
Sources: SARB, Stats SA
Employment shrank by 91 000 in 2009 Q4 compared to the
same period in 2008. In total, the sector shed 349 000 jobs in
2009, following job declines of 84 000 in 2008.
Electricity, gas and water (2% of GDP; 0.7% of formal non-
agricultural employment):
Current performance: Electricity consumption rose by 8.5% y/y in
February up from 8.3% y/y in January. On a quarterly basis,
electricity consumption has accelerated this year relative to the
final months of 2009.
Risks: Electricity consumption has returned to pre-recession
levels, and increasing winter demand along with additional
pressure from World Cup consumption could place strain on the
grid, reducing the reserve margin further.
Figure 12: Utilities GVA vs employment
Sources: SARB, Stats SA
Relative to 2008 Q4, employment in the utilities sector remained
unchanged in Q4 after 1 000 jobs were slashed in the previous
quarter.
Construction (4.1% of GDP; 5.5% of formal non-agricultural
employment):
Current performance: The rate of growth in real building plans
passed of residential property eased to -12.1% y/y in January,
from -36.8% y/y in 2009. For non-residential buildings, the rate of
decline increased to -55.3% y/y in January from -6.6% y/y in
2009. However, real residential building plans passed in the
three months to January, compared to the three months to
October 2009, rose by 0.4% y/y, confirming a bottoming in the
sector. An increase was also reported for additions and
alterations at 4.6% over the corresponding period. In respect of
buildings completed, the non-residential sector is still adding new
supply to the market, which aggravates existing oversupply and
vacancy rates.
Table 3 illustrates the detail of building plans passed when
compared to the corresponding period the year before, and
confirms that the lower turning point may have been reached in
building plans passed for residential property above 80 square
metres as well as for additions and alterations. However, as
expected, non-residential building plans continue to slide.
1050
1100
1150
1200
1250
1300
1350
-30
-20
-10
0
10
20
2000 2002 2004 2006 2008 2010
Employment (RHS) Manufacturing
% q/q annualised Number '000
30
40
50
60
70
-10
-5
0
5
10
15
2000 2002 2004 2006 2008 2010
Employment (RHS) Electricity, gas and water
% q/q annualised Number '000
9
Table 3: Growth in building plans passed (in square metres, y/y)
November 2009 – January 2010 vs November 2008 – January 2009
#
Residential:
< 80 square metres -39.7% (-16.9%)
> 80 square metres -13.6% (-19.4%)
Flats and townhouses -38.1% (-30.9%)
Other* -44.9% (-70.7%)
Non-residential:
Office and banking space -58.6% (-56.9%)
Shopping space -53.3% (-33.9%)
Industrial and warehouse space -27.4% (-5.7%)
Other** 2% (24.6%)
Additions and alterations:
Dwelling houses -7.8% (-14.1%)
Other buildings -13.4% (-19.5%)
# Previous three months’ data in brackets
* Includes hotels, motels, guest houses, entertainment centres, and B&Bs
** Includes schools, hospitals, and sports and recreation facilities Source: Stats SA
Top performing industries: Civil engineering supported by
government infrastructure.
Emerging trends: According to the South African Federation of
Civil Engineering and Construction (SAFCEC), civil engineering
turnover is expected to decline in real terms by 25% in 2010 from
-11.0% in 2009. However, strong demand is seen starting in
2011, which could see increased employment again. In this
environment price volatility cannot be ruled out.
Risks: The overall sector remains burdened by limited new
projects coming on stream and an oversupply of construction
firms. This may see liquidations remaining high in this sector. In
the interim, steel prices of select steel grades are rising. Oil
refinery shutdowns for maintenance procedures have caused
shortages in the supply of bitumen, which will result in a delay of
road construction, aggravating cash flow problems.
Figure 13: Construction GVA vs employment
Sources: SARB, Stats SA
Job losses gathered pace in Q4, with a total of 61 000 jobs lost
(compared to 2008 Q4) versus 51 000 and 33 000 in Q3 and Q2,
respectively. Further job losses are on the cards this year
following the maturity of several World Cup-related infrastructure
projects.
Wholesale and retail trade (13.8% of GDP; 20.1% of formal non-
agricultural employment):
Current performance: Real retail sales contracted by 1.7% y/y in
January, from -3.8% y/y in December and -4.9% y/y in 2009.
Top performing industries: In nominal terms, general retailers;
retailers of textiles, clothing and footwear; retailers of medical
goods, cosmetics and toiletries; and retailers of food, beverages
and tobacco performed positively over the past three months.
The growth laggards remain in the hardware and “other” retail
categories.
Emerging trends: In response to a mild improvement in overall
retail sales’ volumes and rising input prices, retailers have upped
their selling prices in Q1, which has reduced pressure on profits.
This trend has been pronounced in the durable goods market,
where more substantial restocking has occurred of late. The
semi-durable goods market has shown the first growth in sales’
volumes and profitability in Q1 since late 2007.
Risks: Sluggish improvement in household fundamentals such as
tardy employment and income growth and high debt remain
problematic.
Figure 14: Trade GVA vs employment
Sources: SARB, Stats SA
The annual increase in job losses rose in Q4 when 80 000 jobs
were shed, following 76 000 jobs in Q3. This brings the total
decline for 2009 to 268 000.
Finance, real estate and business services (20.5% of GDP; 22.1%
of formal non-agricultural employment):
Finance and insurance (45% of total sector): Deleveraging in
the corporate retail banking space continues to weigh on asset
growth. However, a mild improvement has been noticed in the
personal banking space, particularly in mortgage advances. Firm
150
210
270
330
390
450
510
-4
0
4
8
12
16
20
24
2000 2002 2004 2006 2008 2010
Employment (RHS) Construction
% q/q annualised Number '000
400
800
1200
1600
2000
-10
-5
0
5
10
15
2000 2002 2004 2006 2008 2010
Employment (RHS) Wholesale and retail trade
% q/q annualised Number '000
10
asset markets continue to support growth in the investment and
commercial banking space.
Real estate (35% of total sector): Banks are reporting
increased appetite for mortgage loans, with volumes of
applications and new grants slowly improving. This has seen a
recovery in house prices; however, sluggish growth envisaged
over the next few years suggests that profits on resale values will
remain ailing.
Figure 15: Financial intermediation and business services GVA vs
employment
Sources: SARB, Stats SA
The broader finance sector reduced its workforce by 118 000 in
the fourth quarter of last year, bringing the total jobs lost in 2009
to 361 000 relative to 2008. This exceeds the 261 000 jobs
created in this sector in 2008 and brings employment back to
levels prevailing at the end of 2006.
Transport, storage and communication (10.3% of GDP; 4.3% of
formal non-agricultural employment):
Emerging trends: Recovery in retail and wholesale trade will see
demand for road transport improve. Transnet is focusing on
expanding private sector participation, with the chief aim of
expanding key commodity export corridors.
Risks: Rising fuel prices and still-high logistic costs pose a risk to
the sector’s profitability.
Figure 16: Transport and communication GVA vs employment
Sources: SARB, Stats SA
Relative to the same period in 2008, the transport and
communication sector shed 7 000 jobs in Q4 2009. This brings
the total of labour layoffs in 2009 to 29 000 compared to an
increase of 22 000 in 2008.
General government and personal services (18.7% of GDP; 26.4%
of formal non-agricultural employment):
Figure 17: General government and personal services GVA vs
employment
Sources: SARB, Stats SA
Employment in the community, social and personal services
industry rose by 39 000 in 2009 Q4 compared to 2008 Q4. In
total, 270 000 jobs were added in 2009 compared to an increase
of 320 000 in 2008.
Conclusion
The final cost of the global financial crisis and the associated recession
it induced is difficult to quantify. According to the Bank of England, the
fact that global output fell 6.5 percentage points below its long-run
trend in 2009 has cost the world USD4 trillion. Global trade is believed
to have fallen by 12% last year and volumes won’t surpass 2008
numbers until 2011. While such estimates are debatable and can be
contested, the swiftness with which confidence in the global financial
system collapsed in late 2008 will prove an enduring lesson of the
financial crisis. Psychological forces continue to drive markets in the
recovery period.
Recent data in the domestic economy reveal that a mild recovery in
household demand is underway. The recent cut in interest rates will
serve to bolster confidence and the degearing cycle in future months.
In addition, monetary policy relaxation will contribute to stabilising
conditions in the labour market, which augurs well for the recovery in
household demand. Favourable conditions in export markets have
begun to permeate the domestic private sector, which has seen
optimism over future investment prospects gaining traction. As a result,
the economic growth prognosis for 2010 has been raised to 2.9%.
0
500
1000
1500
2000
2500
-5
0
5
10
15
20
2000 2002 2004 2006 2008 2010
Employment (RHS) Finance and business services
% q/q annualised Number '000
150
200
250
300
350
400
-3
0
3
6
9
12
2000 2002 2004 2006 2008 2010
Employment (RHS) Transport and communication
% q/q annualised Number '000
1400
1680
1960
2240
2520
-5
0
5
10
2000 2002 2004 2006 2008 2010Employment (RHS) General governmentPersonal services
% q/q annualised Number '000
11
Group Economics Goolam Ballim – Group Economist +27-11-636-2910 [email protected]
International
Jeremy Stevens
+27-11-631-7855
South Africa
Johan Botha Shireen Darmalingam Danelee van Dyk
+27-11-636-2463 +27-11-636-2905 +27-11-636-6242
[email protected] [email protected] [email protected]
Rest of Africa
Yvette Babb Jan Duvenage Anita Last Yvonne Mhango
+27-11-631-1279 +27-11-636-4557 +27-11-631-5990 +27-11-631-2190
[email protected] [email protected] [email protected] [email protected]
Kenya Tanzania Uganda Zimbabwe
Botswana Lesotho Namibia Swaziland
Malawi Mauritius Mozambique
Angola DRC Ghana Nigeria Zambia
Simon Freemantle
+254 (20) 3269 027
Kenya Uganda Tanzania
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