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Barometers show growth down, inflation up

Bloemfontein - The South African economy is experiencing a broad slowdown in growth. Not only is the economy growing more slowly, but it is becoming more difficult to do business.

Inflation is biting more aggressively into consumers’ wallets, while falling business confidence is threatening to stifle the fragile growth of the past six months.

This is evident from the Sake24 and BoE Private Clients provincial barometers, which closely track the pulse of five of the country’s largest provincial economies.

All five of these provinces’ indices have fallen, most to their levels of six months ago. The biggest loser has been the Eastern Cape, whose index shed 4.9% in the past quarter and is now back at its October 2010 level.

Things have been slightly better in the Free State (0.7% down on a quarterly basis) and the Western Cape (1.5% down). Gauteng (2.5% lower than three months ago) and KwaZulu-Natal (2.2% down) have experienced the biggest quarterly decline since April 2010.

The slowdown is not unexpected, said Economists.co.za's Mike Schüssler, who compiled the barometers.

"We have been discussing it for some time, but in the past month or two the declines have got worse, spurred on by inflationary fears and a decline in business confidence."

Two sectors in particular are currently experiencing difficult times. Four provinces' agricultural indices declined year-on-year (y/y). The Free State agricultural sector (32.2% down) was hardest hit, but the Eastern Cape (12.3% down) is also feeling the impact of unusual weather conditions and high input costs.

The construction industry is still experiencing a slump, with the Eastern Cape (37.6% down) the biggest loser. In the Western Cape things look somewhat brighter for this industry, which recorded a small 2% rise y/y.

In the second quarter motor vehicle sales began to fall off across the country and, according to Schüssler, this is an indication that consumers now have less money for durable goods.

The poor labour market, household debt and fears of higher interest rates in 2012 are also putting a damper on consumer confidence.

"Consumers are certainly feeling the effect of higher administered prices, such as higher electricity tariffs, and this could damage prospects for further growth this year."

The country's transport economy, however, remains strong, particularly in Gauteng (17.4% up on a year ago) and in the Free State (16% up).

Across the country there is also an indication that banks have begun to relax their lending criteria for home loans and in all five provinces the number of approved bonds has begun to rise y/y.

Activity levels in the financial, property and business services indices in four provinces are higher than a year ago, but in KwaZulu-Natal (0.6% down) the effects of the recession are still being felt.

According to Schüssler, consumers should not become negative about the general slowdown.

"There is certainly a tightness in the economy, but there is still growth and sentiment is actually more negative than reflected by the figures."

But he issues a warning to government that the slowdown in growth and the higher stress levels in the economy are a clarion call to again review fiscal policy and relieve the effects of higher prices on consumers.

"At this tempo of growth we cannot create sufficient job opportunities, and we need to find some way to pump more money into the economy."  

For more business news in Afrikaans, go to Sake24.com.

For more news on the Sake24/BoE Private Clients barometers, go to www.fin24.com/barometer.

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