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Rex Column                                                                                 16 May 2017

Favourable winds, steady drift    

by Cees Bruggemans          words 540

There is so much we have had to get used to this past decade. One of them the separation between financial conditions and the performance of the economy.

For decades we were known as a windfall economy, strongly correlating commodity price booms and domestic economic acceleration. This link ended some years ago. In contrasts, global busts have retained their strong constricted influence.


A global recession like 2008-2009 hit us like a sledgehammer. The ending of the supercommodity boom as Chinese demand dwindled and global supply kept expanding, also had a constrictive impact on us.

But these are not all the phenomena on display. Global financial conditions since the great financial crisis remained easy, favouring yield seeking in higher return, more risky emerging markets. Capital has kept flowing.

Despite our many public governance issues during this period, and contrarian policies not well received in a market economy, thereby strongly eroding business confidence, our global financial support remaind substantial.

But this did not prevent our domestic failings from causing the economy to slow down into a stagnarory drifting. An external capital windfall accompanied by domestic stagnation. Not quite the story line of the foregoing 150 years.

Things became so bad in recent months, that a trustworthy finance minister was fired, and the confidence of global agencies in the government’s intentions became deeply suspect. Two agencies, S&P and Fitch, downgraded us to junk while Moody's should lift its veil on its intentions this coming week.

And yet our financial markets have not as yet taken the hit that we would suspect would take the real economy with it. Large sectors have kept drifting rather than imploding.

In real data just preceding the latest presidential actions and rating agencies recoil, there is as yet nothing to see of what might come next. In this view, the 1Q17 to March is to be regarded as old style, to be followed by new style consequences from 2Q17 onward. Yet global market support remains even now remarkable.

Meanwhile we keep noting the old style drifting. Last week even brought news of a 3% increase in mining production in March compared to February, and it being even better on a year ago, a gain of 15%. This is impressive until I heard that it came as a bit of a pleasant surprise to the Chamber of Mines, too, with no immediate clear indication explaning it.

Electricity was minimally up in March over February, but still down on a year ago. Indeed, the drifting economy refusing to absorb more electricity, and supply still 5% down on 2011.

SA manufacturing production in March was slightly down on February and sharply on a year ago. Capacity utilization between November and February had dropped considerably, from 82.8% to 80.8%. With the 1Q17 manufacturing output down on 4Q16, the recessionary slide observable here continues with a certain persistence.

Purchasing managers indices and business confidence indices faded badly in April, and one wonders how bad the knock on effects will be in retail and manufacturing in 2Q17 and following quarters. Despite all the global support offered to risky countries under present conditions, our own destructive habits seem to be catching up with us.


Cees Bruggemans

Bruggemans & Associates, Consulting Economists



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