Bloemfontein – A sudden chill blew through the country's economy in April. Mine strikes, low factory production, problems in the global economy and government expenditure cutbacks were some of the factors giving the economy the shivers and leading to the sharpest declines since the recession.
The Sake24 and BoE Private Clients provincial barometers, which measure economic changes in five of the country's provinces every month, show that all five retreated over the recent quarter to April.
Mining provinces like Gauteng (-4.7% on a quarterly basis) and the Free State (-6.5% quarter-on-quarter) were impacted the heaviest by the sudden slump.
In April Gauteng's economy showed the sharpest downturn since the recession, and the Free State's overall index moved into the red for the first time since 2010.
Both provinces' mining indices tumbled in the past quarter – that of Gauteng by -9.6% and the Free State by 8.3%.
"Commodity prices took a beating because the global economy is not robust, and strikes at the country's biggest platinum mines resulted in an overall contraction in the mining sector in the first quarter," said Mike Schüssler, economist at Economists.co.za and the compiler of the provincial barometers.
Although the April slump raises the spectre of the previous recession, Schüssler said it is still too early to regard the downturn as a recession.
"Remember, a recession is when the economy contracts for two successive quarters. We are not there yet."
Schüssler said the direction the economy takes over the next two months will be decisive. He expects that government will again open the taps in the next two months, after having curtailed spending in the first quarter.
In April the government index in all five provinces fell, with the Eastern Cape being most (4.4%) down year-on-year (y/y).
The manufacturing sector also experienced pressure in April, with declines on a quarterly basis in four provinces. Schüssler said weaker global demand is hurting the export market.
Apart from the European debt crisis, India recently recorded its lowest growth in nine years, and that of China was also lower than expected.
Where the domestic economy is indeed performing is on the consumer side. In April four provinces' trade indices rose; Gauteng remained unchanged.
"Make no mistake – the consumer is still driving economic growth in this country, although he is starting to keep a tighter hold on his wallet," said Schüssler.
He points to the national communications index, which in April was only 9.7% up on a year ago. Until a few months ago, the index was rising between 15% and 25% y/y.
Schüssler said it appears that the cellphone market in particular is now reaching maturity and growing less spectacularly.
But it's a case of wait and see whether the economy can protect itself from the cold winds of May and June.
"I suspect there is merely some lethargy and we are unlikely to see one-way traffic down," said Schüssler.
- Sake24
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