In this issue: GDP growth in Q2, local and global pressures on the Rand, and the effect of strikes in South Africa.
GDP growth recovers in Q2
After a poor start to the year, with growth in GDP reported at an annualised rate of 0.9% for the first quarter, it accelerated to 3% in the second quarter of 2013.
The main contributor to the improved growth was the rebound of the manufacturing industry, which grew by 11.5% q-o-q (2.2% y-o-y) from -7.9% (-0.7% y-o-y) in 2013Q1. The strong Q2 manufacturing figures were responsible for more than half the overall GDP growth in the quarter, contributing 1.7 percentage points to the overall GDP growth rate. The second largest contributor to GDP growth was the finance, real estate and business services sector, which expanded by 3.5% q-o-q and contributed 0.8 percentage points as a result of increased activities in the banking sector and capital markets.
On an annually adjusted basis, economic growth increased marginally in Q2 to 2% y-o-y from 1.9% y-o-y in Q1. The best performing sectors were the agricultural, forestry and fishery sector, which grew by 6.7% y-o-y, the manufacturing sector with a 2.7% y-o-y increase and the finance, real estate, and business services sector with a 2.6% y-o-y increase.
South Africa's Q3 outlook is expected to be heavily impacted by industrial action that is taking place across sectors. The current strikes in the car manufacturing, textile, construction, electricity, and mining sectors are threatening any further recovery to the South African economy.
Another worrying development is the global financial market reaction to increasing signs that the US central bank may slow down the rate of unconventional monetary stimulus from September. Emerging markets with large current account deficits, such as South Africa, are particularly vulnerable to this development since foreign investors are reassessing their exposure to Emerging Market assets.
Local and global pressures will continue to weigh on rand
South Africa's deficit on its current account1 widened to 6.5% of gross domestic product (GDP) in the second quarter of 2013 from a deficit of 5.8% of GDP in the first quarter. This number, released on Tuesday, was worse than market expectations and taking into account the government deficit2 of 4%, leaves the combined twin deficit at more than 10%. The rise in the current account deficit can be attributed to a combination of factors, including a sizeable increase in imports and a decline in net dividend outflows.3
While the current account deficit data caused the rand to trade at over R10 to the US dollar on Wednesday4 morning, it recovered to trade at around R9.88/$ on Thursday5 morning, largely buoyed by the country's successful $2 billion bond sale earlier in the week.6 This comes after the rand gained some ground from its yearly low of R10.51/$ reached last month, when it traded at roughly R9.98/$ on Monday7 afternoon on the back of weak US payrolls data and with most of the local mining strikes coming to an end.8
However, the rand is not on solid footing: with the US Federal Reserve's (Fed) next policy meeting less than a week away, investors will look to avoid risky assets such as the rand until the Fed confirms whether they will start tapering its bond-buying program.9 This sentiment will be exacerbated by the above mentioned current account data and ongoing industrial action causing major output losses and undermining investor confidence in South Africa further.
Strike fever grips South Africa
As South Africa enters what has become known as its 'strike season', enormous pressure is placed on an already fragile and constrained economy. Employment figures fell to its third lowest levels (shedding a total of 37 388 jobs) since the 2008/09 financial crisis in July10 . Since the beginning of the year, approximately 146 000 jobs have been lost in the formal sector with the majority being shed in the financial services, transport, construction and manufacturing sectors11 .
As collective wage negotiations get underway in the mining, construction, automobile, textile and clothing and fuel retail industries, most unions are seeking revised terms from their members who are refusing to accept the final offers tabled by the industry bodies.
The Building, Construction and Allied Workers Union (BCAWU) and National Union of Mine Workers (NUM) within the construction industry are on strike for a 13% increase this year and a 14% increase in 2014. Members of SATAWU (South African Transport and Allied Workers Union) at SAA are bargaining for double-digit increases after the proposed first increase of 6.9% was rejected. NUMSA in the automobile industry are striking for a 14% increase while the Automobile Manufacturers Employers Organisation are only offering a 10% increase.12
In the mining sector, gold producers have offered a 6% increase with union members in some instances asking for increase of 150%. Union members in the fuel retailing industry want increased pay for the afternoon and evening shifts as well as an increase in the monthly wage rates.13 Earlier this month the textile employers and unions reached a last minute agreement to implement a 7% increase for employees in urban areas and a 10% increase for employees within the rural areas.14
In most instances both the employer and the employee are at an impasse. Employers are unable to give the double digit increases due to constrained economic conditions and lack of growth while employees are unable to keep up with rising inflation, effectively suffering a wage cut and a drop in their standard of living15 .
It is estimated that the strike in just the automobile industry, with cost the country approximately R700 million a day16 , while the strike in the gold mining sector could cost as much as R349 million a day17. By the end of the first week of September, more than 220 000 workers would have downed tools in the various industries effectively ensuring that 3% of the country's workforce would be on strike.
Over the last few years, strikes in South Africa have increased in size and in duration with no clear indication of abating. This prolonged industrial action will continue to constrain productivity and ultimately economic growth, while we suffer great reputational damage both locally and abroad.
1 The current account is the difference between a
nation's savings and its investment and an important indicator
of an economy's health. It is defined as the sum of the balance
of trade (goods and services exports less imports), net income from
abroad and net current transfers.
2 When a government's total expenditures exceed the revenue that it generates (excluding money from borrowings). Deficit differs from debt, which is an accumulation of yearly deficits.
4 11 September 2013
5 12 September 2013
6 http://online.wsj.com/article/BT-CO-20130911-708501.html7 9 September 2013
8 http://www.bdlive.co.za/markets/2013/09/09/rand-is-worlds-18th-most-traded-currency-bis-survey-shows9 http://www.fin24.com/Markets/Currencies/Rand-pulls-back-from-rally-2013091110 AdCorp Employment Index July 2013
11 AdCorp Employment Index July 2013
12 Daily Maverick – 28 August 2013 – South Africa, a strike nation
13 Daily Maverick – 28 August 2013 – South Africa, a strike nation
14 Business Day Live – 2 September 2013 – Textile industry averts strike action
15 EWN – SA in for more strikes, weaker rand 28 August 2013
16 Daily Maverick – 28 August 2013 – South Africa, a strike nation
17 Mining Weekly – 30 August 2013 - Striking SA car workers reject wage deal, gold strike looms
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