South African consumers have to strap themselves in for a choppy ride in 2014 as a weak rand, labour strife, higher inflation and rising interest rates are dimming the lights on 2014 before they’ve even had a chance to shine.
This is according to the latest BankservAfrica Economic Transaction Index (BETI).
Economists are forecasting that the economy will grow slowly around 2,8% – and even this may have to be adjusted downwards.
“Spending in the first month of the year normally declines as people recover from the overspending that usually happens in December,” says Brad Gillis, CEO regulated products at BankservAfrica. “This year is no different, apart from the fact that the data is even more depressed than usual.”
Mike Schüssler, chief economist of economists.co.za, comments: ““South Africa has not started any year with a major strike right on the first day of the year – or at least one cannot remember a year that started with 7 000 workers on strike.”
With trade unions in platinum, manufacturing and municipalities also striking by the end of the month, it seems as though the year has started with major industrial strife. Add to these the wildcat strikes at major post office sorting centres, and the South African economy undoubtedly kicks off the year under significant labour pressure.
“An element of uncertainty definitely continues to influence economic decisions. The slow growth trend seems fairly entrenched in the South African economy,” says Schüssler. Besides unexpected strike actions, he identifies various other underlining problems.
The lack of capacity (as in the case of electricity) will most certainly also have an impact on South African export earnings and, therefore, on transport and mining company earnings, as clearly illustrated by the Richards Bay Coal Terminal stoppage.
“Remember, the effects of these strikes are not always seen during that particular month of the strike. The earnings that decline both from a company and employee point of view will only have an impact on the BETI a month or two later,” Gillis explains.
“Although the BETI does not indicate an overall decline, it certainly indicates that the South African economy remains in stagnation mode, growing at around the population rate,” says Schüssler.
“Economic stagnation means that Gross Domestic Product (GDP) will not grow much faster than the population increases. We expect GDP growth in the first part of the year to measure at about 1,5% to 2%.
“Although it is unlikely to be a great growth year, growth is growth and at least South Africa is not in decline,” says Gillis.
The central bank has to focus on combating inflation, and interest rates are now likely to rise further.
“New car sales already indicated a decline of nearly 7% while the PMI was also below 50 in January. This indicates stagnation in manufacturing, too. We are likely to see an inflation increase.
“With the decline in the rand, the prices of many everyday goods are expected to increase. Petrol prices have already increased by 13,8% over a year ago.
“Moreover, maize prices reached R3 000 per tonne for the first time in January as South Africa’s staple food price increased due to poor harvest expectations and the weaker rand,” Schüssler adds.
