The NMBBCI reflected only marginal improvement during 2011 with the index in December 2011 only some 3 percent up on the January 2011 level. Furthermore during the closing four month period of the year between September and December 2011, the index reflected uncertain performance and largely moved sideways during this period.
To receive the Nelson Mandela Bay Business Confidence Index (formerly the Port Elizabeth Business Confidence Index) compiled by Dr Neil Bruton of RGT Smart Ltd, contact the Nelson Mandela Bay Chamber of Business.
The slower pace of economic growth in the South African economy for the second and third quarters of 2011 appears to have carried over into the fourth quarter of the year and into early 2012. Expectations for economic growth in 2012 have been adjusted downwards to around 2.8 percent from what will probably end up as 3.1 percent for 2011. With an abundance of external challenges facing the country, low and volatile business confidence and little growth in fixed investment, the demand side of the economy will in all probability be the engine for economic growth in 2012. In this regard monetary policy is highly supportive at present with the repo rate at 5.5 percent now effectively negative in real terms with inflation at 6.1 percent. The impact of low rates of interest on demand for credit has been muted with the rate of growth in credit extension to the private sector remaining in single digits and low by historical standards. However, the rate of growth in installment sales credit extension has begun to perform slightly more enthusiastically growing by 10.7 percent on an annual basis in December 2011. Expected levels of economic growth for 2012 should, furthermore, support growth in the disposable income of households at around eight to ten percent in nominal terms or three to four present in real terms, which will provide a sound platform of support for ongoing growth in consumer demand. Government consumption spending also remains relatively supportive and the exchange rate currently at less overvalued levels is more producer friendly which probably played a role in the performance of the Kagiso PMI in January which rebounded strongly to 53.2 from weak December levels. Most encouraging was the performance of the expected business conditions index which rose by 3.8 points to 65.1 reflecting optimistic expectations. Growth in real disposable income of households will, furthermore, have been complemented in early 2012 by the wealth effect of the strong performance of the stock exchange with the all-share index climbing to all time high levels in early February.
While still early in the year current circumstances and expectations seem to suggest slow growth in the NMBBCI during 2012, with growth rates probably remaining in single digits. However, some downside potentialcan also not be ruled out as a possibility for the year.
With regard to the details of the NMB BCI, the trend cycles in nineof the sub-indices reflected improvement, fivereflected deterioration, and one moved sideways.
The indicators that supported the NMB BCI through Decemberincluded the trend cycle in the price of gold which continued to assistthe index and the trend cycle of the JSE all-share index which reflected recovery. The underlying trend cycle in the total new vehicle market in the country and the trend cycle in the value of real retail sales in the Eastern Cape also reflected improvement as did the trend cycle in the number of passengers arriving at the PE airport which has sustained an earlier improvement. The trend cycles in the real value of both exports and imports are also reflecting growth and encouragingly, while at low levels, the trend cycle in the real value of building plans passed in the Metro is also reflecting improvement. The trend in the real value of manufacturing sales also lent support to the index.
On the downside, the trend in the rand US dollar exchange rate continued weakening through December, and the trend in the level of consumer confidence in the Eastern Cape continues in decline despite a marginal improvement in the actual data in the fourth quarter. The trend in the local rate of inflation is accelerating, weighing on the index and the underlying trend in the real value of buildings completed in the Metro continues declining.
The trend cycle in the prime interest rate moved sideways through December having no meaningful effect on the overall index.
Alan Straton
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