By Cees Bruggemans, Chief Economist FNB
Evidence continues mounting that our economy has turned the corner in tandem with most overseas countries, if at a slower speed.
Our stock market has marched closely in lockstep with global markets, reaching its cyclical low last November, and revisiting this level last March, after which a 40% rise followed (less vigorous than elsewhere).
Our non-gold mining output reached its cyclical low in January 2009, electricity output bottomed in February, manufacturing output did so in April, all thereafter in a rising trend.
Nominal house prices appear to be rising from July and passenger car sales (per trading day) seem to be rising from August. Our exports as denominated in Dollars bottomed in January, thereafter also rising.
So recovery has been with us for some time, even if opinion surveys and other leading indicators took their time confirming this.
The SARB leading indicator reached its cyclical low last April, thereafter rising though falling modestly in July.
The RMB/BER business confidence index kept falling through 3Q2009, with credit growth steadily easing.
The FNB/BER consumer confidence index reached a cyclical low as far back as 2Q2008, thereafter sending out mixed signals overall (but offering a more distinct detailed message, with each subsequent quarter apparently more than ever not a good time to buy durable consumer goods).
The Kagiso/BER Purchasing Manager Index (PMI) bottomed last April, thereafter minimally rising and only from September playing catch-up with overseas PMIs.
Despite unemployment and national income still falling through midyear, the South African economy probably turned from May 2009, with 3Q2009 possibly the first full quarter showing a small net gain in GDP output, building on this through 4Q2009.
Given the dept of the 4Q2008 collapse, the output rebound so far has been impressive in parts (non-gold mining +15%, electricity +7.5%) while miserable in others (manufacturing only +4%, minimally in new passenger cars sold daily).
Even so, more bounce can be expected in coming months as the change of pace in inventory destocking and recovering export fortunes continues to provide lift to industrial output, while interest-rate sensitive sectors should see the belated if gradual benefit of 500 points of interest rate easing since December seep through.
But nearly all this is old news, looking back in time.
When looking forward, we can see more bounce being harvested in output and spending levels in coming months, but there is also reason for caution.
The modest growth acceleration now experienced is mostly policy-supported, trade-assisted and inventory-driven.
As some of these features fall away or moderate, can the economy find it within its own power to sustain the growth rally or will it falter anew?
This is a question not only facing us, but also asked overseas, and its answer importantly shaping us.
Globally, there are three schools of thought. The fearful expect a relapse into GDP decline. Those sanguine expect only a mild renewed slowing. And the bullish look for upside growth surprise.
Though the fearful may think their double-dip stands a good chance materializing, the policy stance is against them. Governments and central banks are forcefully countering economic weakness and will continue doing so, probably preventing relapse into double-dip recession (and deflation).
The real case to be proven is the bulls. Was it all a mistake, the financial panic of September 2008 and the global industrial collapse of 4Q2008? Has policy action been sufficient to prevent the worst, minimalising safe haven returns and restoring animal spirits, with the world now rapidly unwinding mistaken kneejerk reactions?
It is tempting to believe so when examining trade data, industrial activity, stock markets, even household spending and business durable orders, led by vigorous Asians and also evident in the West.
But should we be careful of being too eager of seeking yet another surprise (the fifth), after having been serially surprised by the intensity of global financial crisis, industrial collapse, synchronized policy response and reversing capital flows from the global centre back to its periphery?
The latest US non-farm payrolls and other economic data disappointed. Is it a warning that slack is huge and recovery probably modest, especially once destocking ends, fiscal policy is no longer supportive and global panic unwinding reaches full term?
What probably remains is a wobbly world carrying a very large output gap unlikely to close fast, requiring central banks to remain supportive for long.
This suggests low global interest rates and probably a weaker Dollar, though disorderliness will be countered. It also promises yet more liquidity flows towards high-yielding periphery destinations.
All this may mean less trade bounce for South Africa in 2010 than perhaps imagined even as interest-rate sensitive spending recovers only gradually due to credit restraint (and consumer unwillingness to incur debt).
Overlaying it all will probably be further Rand firming under influence from global events. This suggests only subpar growth for us next year even as inflation continues to subside towards 4%.
Alongside others (Hungary, Russia, Turkey), our interest rate cycle may not yet have bottomed?
Source: Cees Bruggemans, FNB,October 6,2009.
