Port Elizabeth - The sharp economic recovery in the Eastern Cape over
the past two months has suddenly started marking time.
The main reason for this is a 10.6% fall in government spending compared
with February, said Mike Schüssler, the Economists.co.za economist who
developed the Sake24 and BoE Private Clients Eastern Cape Barometer.
If one looks at government spending at municipal, provincial and
national levels on a three-month basis, spending is 15% lower.
Schüssler says it’s difficult to explain the sudden halt in spending.
Possibly there had been overspending on government level in the preceding
months, and so the flow had to be halted in March.
The setback is regrettable because the province’s economy was just
starting to settle down, he said.
The barometer for March is at 99.1 points, 7.1% better than a year ago
and also 2% better on a three-month basis.
Despite the halt in government spending, the overall picture still looks
good. The growth index is 0.3% higher on 101 points, compared with a year ago.
The sub-indices that increased the most compared with activity levels in
March 2009 are manufacturing and transport and communication, respectively 9%
and 13.7% higher than a year ago.
Schüssler said the transport component is supported in particular by
harbour activity in Port Elizabeth and East London, which is a hefty 65% better
than a year ago.
Positive signs can already to be seen in the commercial index, 5.5% up
on a three-month basis. Retail in the Eastern Cape is lifting its head
slightly, with a year-on-year increase of 0.9%. Consumers are spending readily
on especially pharmaceutical, beauty and cleansing products and food, but are
still reluctant to buy furniture, hardware and durable goods.
Spending in restaurants and hotels rose by 1.8% compared with a year
ago, and even spending on air transport is up. According to Schüssler,
consumers are already comfortable with taking short holidays and spending their
extra money on eating out and entertainment, but they are still not buying
expensive items, like lounge and dining room suites.
However, he is surprised at the increase in motor sales in the Eastern
Cape. This figure is about 24% up compared with March 2009.
Schüssler is also surprised at how much the financial and business
services sectors (which include the property sector) are struggling. Activity
is 3% better if one looks at the three-month figure, but on an annualised basis
it’s still 13.6% lower than in March last year.
The subindex is hampered by property transfers, which are about 21%
lower on an annualised basis. House prices are improving, but the volume of
property transactions is not yet up to scratch.
The fall in the stress index is attributable to inflation of 4.3% in the
Eastern Cape and a relatively low interest rate and unemployment, Schüssler
The overall picture indicates that growth can still be expected and
consumer confidence may return to support the economic recovery, he said.