KZN still squeezed by financial crisis

Bloemfontein - The negative impact of global economic uncertainty has caused the Sake24 and BoE Private Clients KwaZulu-Natal Barometer to slip 2.8% over the past three months.

This province makes the second-largest contribution to South Africa's gross domestic product (GDP), but its economic growth has decelerated in recent months.

Sectors such as manufacturing (2.3% down on a year ago), agriculture (3% down) and mining (2.6% down) are beginning to crack under the pressure of higher prices for services like electricity, high global oil prices, the debt crisis in the EU and weaker demand for South African resources.

The manufacturing sector contributes almost 26% to the province's economy and in August it fell year-on-year (y/y) for the first time in 17 months.

According to Mike Schüssler of Economists.co.za, the compiler of the KwaZulu-Natal barometer, strikes - especially those in the metal and engineering industries - had a negative impact on manufacturing.

"A large number of manufacturers closed their doors during strikes and the subsector’s production fell sharply by 11.2% after having risen for five successive months." 

The construction sector has been struggling for the past two years and, according to Schüssler, this can partly be ascribed to a decline in government expenditure on infrastructure projects.

The province is also experiencing a drop in the construction of warehouses and factories - to be expected in periods when manufacturing is under pressure.

The property sector is still battling to compensate for losses during the recession and property transfers increased 3% y/y. The financial, property and business services index has however lifted only 0.6% in the past year. Advertising sales in the province are 3.1% up on a year ago and asset management grew 10%.

The broad trade index, which includes tourism, is still growing y/y, but in the past three months also moved into the red. The 3% annual growth was the lowest since May 2010. Unlike in other provinces, vehicle sales declined 0.8% over the past year.

"This is an indication that consumers have less money to spend and are starting to cut back on luxury articles," said Schüssler.

But the number of visitors moving through the airport was 7% up, indicating that the R7bn investment in building a new airport is starting to bear fruit.

The volume of freight through the ports was 2.8% up y/y.

Government expenditure in the province began to decline rapidly and in August was only 2.6% up y/y. The previous month's rise was 12.5%.

"Although the province is not contracting as much as the Eastern Cape or Gauteng, we can expect further declines in coming months as inflation impacts consumer wallets and the global economic crisis makes itself felt," said Schüssler.

Visit www.fin24.com/barometer for a comprehensive breakdown of the barometers.