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The South Africa Reserve Bank yesterday released the second quarterly bulletin. Off the back of this, Cees Bruggemans unpacks the outcomes and plays them up against the second quarter GDP data, which showed a 1.3% quarterly decline.
Comparing the 2 sets of data, Bruggemans highlights some conflicting numbers, but says the quarterly bulletin points to some good news as the GDP slowdown was overstated. An interesting piece, which highlights the fact that it’s not only Chinese data that’s questionable. – Stuart Lowman
By Cees Bruggemans*
We were told two weeks ago by StatsSA what happened to GDP in 2Q15 from the supply-side (production). It declined by 1.3% quarter-on-quarter annualised (and was still +1.2% yoy). At least five sectors in recession (agriculture, manufacturing, motor trade, wholesale and tourism) and the rest mostly a very sorry lot.
This week we got to hear from SARB the demand-side of 2Q15. It was a little more up-and-down, too.
First the good news.
Household consumption still grew by (an admittedly very modest) +1.2% quarter-on-quarter annualised. Government consumption did +0.4%. Both had slowed, but had not gone negative.
The household breakdown was durables +0.2% (eroded to a crawl as people turned more nervy about events and defensive about big ticket purchases), semis +3.1% (clothing showing its staying power through thick and thin), non-durables -0.7% (petrol price cuts of summer completely reversed), services +2.9% (the come back kid telling no tales after many quarters going nowhere).
Read also: Brian Kantor: SARB inflation prediction’s inaccurate, must change narrative
Furthermore, gross fixed capital formation (investment) did +1%.
Adding this stack up, final demand in 2Q15 did a not unhappy +1%. Yet GDP did a surprisingly and totally unexpected -1.3%. How now, holy mackerel?
We are then also told that net exports added 6.1% to real GDP, while a massive destocking subtracted 6.2% of GDP. Presumably these two items were closely connected?
Correct. In essence, platinum inventories were sharply draw dawn (and exported). Oil refinery shutdowns for maintenance meant lower oil imports (and less imports). Or one or two tankers were lost at sea for while, slow steaming, and slow in arriving, after quarter end (in which case more distortion in 3Q15).
Whatever, both effects caused a massive inventory swing, down in both mining (platinum) and manufacturing (oil). And all this stuff was either exported or not imported, boosting net trade.
Read also: Martin Wolf: Why Mr Market’s worries about China makes a lot of sense
So what, you will ask? Well, watch the stack unfurl its true colours.
When we analyse from the demand side how the -1.3% in GDP occurred, the following story unfolds:
• Household consumption contributed +0.7%
• Government consumption did nothing at +0.1%
• Fixed investment did little better at +0.2%
That gives us final demand of +1%
Now we deduct changes in inventories -6.2%
We add net exports, an equally robust +6.1%
And we are left with the explained bits so far: 1% – 6.2% + 6.1% = +0.9%
And what happened then (for we are still light years from -1.3%)?
Someone then happily deducted the residual item that cannot be allocated, but that reconciles the known supply side picture with the known demand side data.
And so the residual item was -2.2% to get to a 2Q15 decline of -1.3% in GDP.
And they don’t trust the Chinese data. And yet this is the best we in SA can do, and that is genuine. Very difficult to unearth these things.
That residual discrepancy may sit anywhere on either the supply or demand side, in any of the production or demand components, concentrated or diffused. Nobody knows, for if they did, it would have been allocated….
Any more good news?
Yes, the large net destocking, export boost and oil import compression, meant that the trade balance showed a R82bn positive swing (and unheard of, into surplus).
Even when a quarter thereof was negated by a slightly larger services deficit, it still meant that the current account deficit fell pleasantly to 3.1% of GDP (from 4.7% of GDP in 1Q15).
Is any of this sustainable?
Well, 3Q15 is going to show whether the supply side weakness continues, or the demand-side lingering muddle persists, or whether these horses switch positions, whether the residual item remains massive, negative, positive or truly whatever, for we can’t know.
What we can say with high confidence is that the enormous destocking and net export boost will probably not be repeated (platinum producers having shot their stocks and those meandering oil tankers coming into port as oil refineries switched back on, even as August had yet another oil refinery go off-line….but that would not compress oil imports, merely keep them low?).
That current account deficit compression will probably end, going back to 4% plus of GDP.
Read also: SA Current Account eases on weak fundamentals – boosts Rand
So all gets revealed in a manner that it will take a clever cost accountant that could possibly tell what’s going on. But that’s not news. We already knew that, not so?
As to long suffering households, things seem to be slowly eroding further. Total compensation of employees growth fell to 7.5% from 7.7% (in nominal terms, with Andrew Levy reporting 7.8% average wage settlements).
With the inflation tide smartly rising again, it whittles away real income growth. That in turn erodes real spending growth.
Things aren’t falling apart. But we seem to have very little forward momentum now, nearly becalmed, yet not quite so in some quarters and components of the economy. But the trend since 2011 is worryingly corrosive.
* Cees Bruggemans, chairperson, Bruggemans and Associates, Consulting Economists
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