Mariam Isa
12 January 2009
Johannesburg — NEW year optimism is likely to fade a bit in local markets this week, despite the absence of official data widely expected to paint a dismal picture of the economy in the first half of this year.
A confidence index due from the South African Chamber of Commerce and Industry (SACCI) tomorrow will probably show a dip in the mood of business last month, says the body's CEO, Neren Rau.
"If we get an uptick, the reason would be some positive developments over the festive season, when markets recovered somewhat," he told Business Day. "I don't expect a dramatic improvement and a pickup would be more of an anomaly than an established trend."
In November, the SACCI business confidence index (BCI) edged up two index points to 86,7, after diving to 84,2 in October. The index monitors the business climate through nine economic indicators, share prices, finance costs, metal prices, and the rand's exchange rate.
Citigroup economist Jean-Francois Mercier thinks the BCI rose to 88 last month on improvements in several of its components, but he also sees the business mood staying grim over the next few months. "The BCI may be signalling that the bottom of the South African economic cycle is near, though the recovery may be lengthy," he said. His forecast level for the BCI will still be the third-weakest since August 2003.
Economists and business leaders are all warning that the first half of this year will be tough, although they are fairly confident of a modest recovery in the second half.
This is provided there are no more negative twists to the global backdrop, which will be hostage to a recession in the main developed economies -- the US, Europe and Japan -- and a slowdown in the two emerging giants, China and India.
Clear Distinction economist Kevin Lings has joined the ranks of analysts who have revised their growth forecasts for the economy this year, down to below 2%.
"For 2009 we now forecast GDP (gross domestic product) to slump to only 1,5%, with almost all sectors of the economy coming under pressure," he says. But he thinks SA is likely to avoid a recession as the government carries on with a R600bn infrastructure spending drive.
That will help counter the effects of flat consumer spending, which will take a while to respond to lower interest rates and inflation, as the threat of job cuts looms larger.
But the private sector will continue to rein in spending, as waning domestic and export demand undermine profits. That will curb overall investment this year, and Mercier forecasts it will slow to 6,2% from an estimated 11,4% last year.
A key survey on Thursday is likely to show that manufacturing activity slowed again last month, pointing to a fall in output during the fourth quarter of last year. In November, the Investec purchasing managers' index dived to a record low at 39,5, dipping below 40 for the first time since its inception nine years ago.
The PMI survey, which measures the sales orders and expectations of purchasers of factory supplies, is normally a reliable health gauge for the sector - the economy's second-biggest. Official data last week showed that factory output dived by 4,4% in November . It now looks a forgone conclusion that output fell for the second quarter in a row in the final three months of last year.
But the jury is out on whether retail sales, the third-biggest sector, also fell in that quarter - which would be the third decline in a row, and could force economic output down.
"I'm pretty confident that retail sales were better than expected - it wasn't a good festive season but it was better than people thought it would be," says Rau.
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