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Rex Column

Rex                                                                            9 December 2013

SA fixed investment trends  9/12  

By Cees Bruggemans                                                                  Words 600

Real fixed investment growth averaged 2.3% annualised this year, half the pace it did last year. Year-on-year the growth so far has averaged 3.2%.

There were many varied growth patterns across economic sectors and type of investment assets, indicative of how prospects differ.

Seen across sectors, the high performer for fixed investment this year has been manufacturing, averaging over 5% y-o-y growth, and its investments levels steadily rising through the year, reflecting mainly investment in new technology and labour-saving processes, given cost and competitive pressures.

I have some difficulty with the idea of an undershooting economy. Yet SA growth has slowed to +0.7% quarter to quarter annualised, and the year-on-year growth was only +1.8% in 3Q2013.

This is now also the expected tally for 2013 overall.

If 2013 was the Year of the Maradona Dribble, what will mark 2014?

Maradona Dribble? The phenomenon of an aggressor moving in a straight line towards goal while five defenders serially misinterpreted his moves, preemptively dodging as they anticipated feints that never came.

This year was full of such feints, in the US, Europe, China, Syria and not excluding our mining labour strikes and settlements. And not forgetting EM sudden capital stops/reversals

US shutdowns that fizzled. US debt showdowns, Fed tapering starts, Chinese implosions and Syrian takeouts that never came. Hamstringing SA mining strikes that threatened but blew over. EM Armageddon postponed.

It is a long list of things that arose and then blew over, or was simply delayed (or transformed into a different kind of risk than before).

That was 2013, ending with booming stock markets globally and growth finding its way, if modestly.

With events playing out with bewildering speed, as potential crises present themselves serially, but somehow are resolved or simply sidestepped, just what are the assumptions underlying our SA economic prospects and what do we get when we stress-test them?

Realistically, the mood is not a happy one. 

We seem for now trapped in a 2%-2.5% GDP growth groove. Inflation reached 6.4% though is now again back at 6%. The Rand has weakened into undervaluation territory, even if of late clawing back lost ground in volatile fashion, currently short of 10:$. 

Interest rates are at historical low levels, with the repo-rate negative in real terms, credit growth modest, a lingering large output gap reflecting many idled resources, and the SARB between a rock and a hard place as the growth/inflation interface now keeps policy neutral. The current account deficit is a large 6.5% of GDP and gives little incling of easing. 

South Africa has now completed six quarters of slow steaming at 2%-2.5% GDP growth, with perhaps another six such quarters still ahead, taking us into 2015.

Thereafter new possibilities may open up that could with luck conceivably improve the pace.

That is not necessarily where the main national emphasis resides, with SARB Governor and Minister of Finance still stressing global crisis downsides, our politics in populist flux, our labour relations too often in disarray, our infrastructure starting to fail us ever more impressively, our population impatiently demanding but mostly not getting, and it all crushing the mood sufficiently to inhibit risk taking.

The economic upswing that started in mid-2009 is getting long in the teeth. Next month will mark 55 months of upswing. That is no longer a minor upswing but is starting to turn into a respectable run. 

Unfortunately, the pace of this upswing is nothing to write home about, reminding more of 1999-2003 at best (and 1983-1993 at worst).

The problem with stall speed is that you may only discover it too late, especially when already very low, as that Boeing did in San

Francisco earlier this year, losing its tail and turning into a burning hulk.

Same can happen to economies.

Sometimes things turn out lucky, as pilots intervene early enough and go around for another try. The 2004-2007 boom episode was certainly one of those, except they then overdid the exuberance ahead of the 2010 soccer world cup while the Western world lost the plot, an unhappy coincidence.

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