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Bloemfontein – In May the Free State economy continued the listless performance of recent months. These are hard times for the mining sector, and government expenditure has also fallen off considerably.
The May overall index of the Sake24 and BoE Private Clients Free State Barometer fell 3.5% year-on-year (y/y), losing 5% over three months.
The contraction in the Free State economy is stagnation rather than recession, said Mike Schüssler of Economists.co.za, who compiles the Free State barometer.
He points out that not all economic sectors in the province have weakened and that spending by the national government on infrastructure projects, among others, could lift the provincial economy within months.
The biggest loser in May was the mining index, which was 10.4% down on the year before. The gold mining industry, where cost pressures are currently hurting production, carries a weighting of more than 90% in this index.
"Mining in the province continues to struggle and it's no longer a sector on which the Free State should depend," Schüssler said.
It's clear that the Free State government has tightened its belt and in May the government expenditure index fell 5.5% compared with the month before. This index is compiled from expenditure by national, provincial and local authorities.
According to Schüssler municipalities are struggling to meet their commitments in poorer provinces like the Free State. His view is endorsed by the national department of finance's recent report on the state of local governments.
This report found that almost R50bn of the R76.6bn owing to South African municipalities is owed by households.
This has a massive effect on municipalities' ability to provide services.
But Schüssler points out that national government's spending in the new financial year will cause the index to rise again within the next couple of months.
The Free State trade index rose a modest 3.4% – its weakest rise since October 2010.
Motor sales improved 1.5% y/y and petrol sales were 0.4% down, probably because consumers were waiting for a reduction in petrol prices.
"Most retail sector increases are only just keeping up with inflation and furniture and fitting sales seem to have fallen from their highs of a few months ago," said Schüssler.
The province's stress index, which indicates how difficult or easy it is to do business, is 3.1% up on a year ago. Schüssler said this is not yet cause for concern but it does leave the province vulnerable if the economic situation worsens.
"The Free State will probably be the first to struggle if the rest of the country has a difficult time, as it is one of the poorer provinces."
- Sake24
For more business news in Afrikaans, go to Sake24.com.
To find out how your province performed, click here.
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