After a number of months of sideways movement the NMB BCI has begun declining slowly, under pressure from a declining pace of economic activity both in South Africa and in the major western economies.
In both the US and the EU growth rates have slowed sharply and financial markets have contracted substantially discounting the possibility of the emergence of renewed global financial crisis on the back of slower rates of economic growth and sovereign debt concerns in circumstances where the means of addressing such a development are far more limited than in 2008 and 2009.
In South Africa the second quarter of 2011 saw slower rates of economic activity with manufacturing production only marginally up on an annual basis and down by -2 percent when compared to the first quarter of 2011 on a seasonally adjusted basis. Similarly while in real terms, retail trade sales for the second quarter of 2011 reflected an increase of 4.1% compared with the second quarter of 2010, second quarter 2011 real retail sales grew only marginally by 0.1 percent from the first quarter on a seasonally adjusted basis.
To receive the Nelson Mandela Bay Business Confidence Index (formerly the Porth Elizabeth Business Confidence Index) compiled by Dr Neil Bruton of RGT Smart Ltd, contact the Nelson Mandela Bay Business Chamber.
Economic growth in the SA economy has been driven by household consumption spending since late 2009 averaging a rate of growth of 5 percent. However, the sustainability of this performance is under growing pressure as real free disposable income of households is increasingly impacted by slowly rising inflation, a range of administered price increases and the more specific impact of increasing food and fuel prices on household budgets. Growth in consumption spending will furthermore have been impacted and will be restrained in coming months by the slow pace of growth in employment, ongoing high debt levels, slow growth in bank credit extension and negative wealth effects emanating from a weak housing market and the recent sharp downward adjustment in JSE equity prices.
Looking ahead the pace of economic activity in coming months will be affected by both the probability of slowing household consumption spending and the fact that fixed investment by the private sector is reflecting very slow growth. These developments when taken together will probably result in slower levels of economic growth in the second half of 2011 and into 2012. Under these circumstances it has become unlikely that any increase in interest rates will occur in 2011 with some analysts even talking of a further reduction in interest rates.
With regard to the details of the NMB BCI, the trend cycles in four of the sub-indices reflected improvement, ten reflected deterioration, and one moved sideways.
The indicators that supported the NMB BCI through July included the trend cycle in the price of gold which continues to assist the index. The underlying trend cycle in the new car market in the Metro is also growing slowly as is the trend cycle in the value of real retail sales in the Eastern Cape. The trend cycle in the real value of new buildings completed in the Metro, is also reflecting some tenuous improvement but with the actual values at a very low level.
On the downside, the trend in the rand US dollar exchange rate weakened marginally through July, as did the trend cycle of the JSE all share index, a negative development that will accelerate through August. The trend cycles in the real value of both exports and imports also moved into decline through July and the trend in total national new vehicle sales has also begun weakening. The trend in the level of consumer confidence in the Eastern Cape is declining and trend in the local rate of inflation is accelerating weighing on the index. The underlying trend in the real value of building plans passed in the Metro is declining and the trend in passengers arriving at the PE airport continued declining through the month. The trend in the real value of manufacturing sales is now also declining slowly.
The trend cycle in the prime interest rate moved sideways through July having no meaningful effect on the overall index.
Dr Neal Bruton of RGT Smart Ltd., has compiled the NMB BCI on behalf of NMBBC.
Alan Straton
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