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Short Notes

Short Note                                                                                      8 June 2016

GDP falters (again)   

by Cees Bruggemans          words 550

For the third time in two years and a bit, GDP took a dive. The 1Q16 was 1.2% down on the 4Q15 at an annual rate. Perhaps equally startling, GDP dropped by 0.2% in 1Q16 year-on-year, the first time since the 2009 recession to do so. What does this signify?

I find the data very much up-and-down between quarters, as if the economy can't make up its mind where to go. But when going deeper into the numbers, the pain on the production side of the economy is very much located in mining and agriculture, while on the spending side it is household consumption and fixed investment that make the kneefalls.

Short Note                                                                                      7 June 2016

Rating’s supply challenge   

by Cees Bruggemans          words 980

The rating agencies have so far used a remarkably identical song sheet, which ticks all the boxes to a degree warranting a reprieve, which we duly received. But is there something missing from the narrative?

Or to put it differently, we are undertaking to do many necessary things, but is it sufficient in the end to sustain the rating?

Short Note                                                                                      2 June 2016

The hamstrung SA economy  

by Cees Bruggemans          words 730

The economy is in the deadly grip of a loss of confidence in its modern sector, with real household income gains eroding away, tightening credit availability and spreading evidence of financial hardship.

New car sales in May showed evidence of severe and deepening recession, as households increasingly resist replacing their cars, preferring to hold on to their existing vehicles, lengthening the replacing cycle.

Short Note                                                                                      19 May 2016

Unfinished SARB pauses   

by Cees Bruggemans          words 600

The good news is that SARB paused today, keeping repo rate unchanged at 7%, and prime rate consequently staying put at 10.5%. But it all sounded rather grudgingly. This seems to be a pause only in what remains a distinctly unfinished tightening rate trajectory.

The MPC statement as usual covered all bases, including a few global ones I wouldn't have thought were all that pressing for us, unless there was a pressing need for padding in an otherwise brief assessment.

Short Note                                                                              8 May 2016

Moody's Shocks Pleasantly   

by Cees Bruggemans          words 680

Moody's yesterday shocked most of SA senseless in the most pleasant way imaginable by confirming its credit rating, if qualified with its downside outlook. Instead of downrating us, we got a reprieve. This had been predictable up to a point (see my Comment “A Few Moody’s Questions” of 14 March), but it certainly wasn't the dominant local market expectation, where a recent institutional poll for instance showed over 80% of respondents expecting a downgrade this year.

But let’s not celebrate prematurely. All we have bought it seems is time by our many intimations of future delivery. What can be believed, what can't, and what can still derail our credit rating?

Short Note                                                                              4 May 2016

SA Building’s Silver Lining   

by Cees Bruggemans          words 680

The February residential building stats captures our SA essence in a nutshell. Decade-long stagnation in the middle- and higher-income market segments, robust stirrings in the low-income ones. But overall we aren't really going places. For that we need stronger economic growth generally.

The same story, really, as we heard from Transnet only last week. A very realistic reassessment about SA mining export potential, especially coal and iron ore, reiterating that the Transnet capex budget is getting spread out over a (much) longer time frame, but also now the avowed intention to diversify, for instance into manufacturing, especially high-value consumption goods (including motor trade?) where there apparently remain niche transport opportunities.

Short Note                                                                              24 April 2016

The Technology/Caution Interface   

by Cees Bruggemans          words 700

In the post-2007 world there have been challenging convergences globally, with an additional twist locally: Fear of committing long-term, exciting technology solutions to effect large-scale cost-reductions, and in our SA case also business caution about the government policy paradigm.

Worldwide, it has kept back new capex in large-scale physical expansion, and triggered a start with major reduction in Chinese industrial overcapacities, while most new business investment globally went into using new technologies to effect operational cost reductions. What suffered was growth, job creation and real income growth.

Short Note                                                                              19 April 2016

Oil stuck at $40?   

by Cees Bruggemans          words 650

It has been a confusing 48 hours for global oil, in which Saudi apparently flip-flopped. Brought together at Doha to do a output capping deal among a few big suppliers, the Royal Saudis apparently reconsidered at the 11th hour, abruptly re-emphasizing that market share maintenance remains for them the main play.

That took a return to cosy cartel arrangements off the table, instead keeping production risks to the upside (undermining high-cost oil supply). With global oil demand recovering, but only tepidly & uncertainly (China), that in turn caps Brent spot oil at about $40, low for longer than imagined.

Short Note                                                                                  12 April 2016

Markers of SA Prosperity    

by Cees Bruggemans                 words 820

We know the SA middle class is steadily being squeezed from both top & bottom, to the point of many experiencing genuine loss of prosperity. The poor have at any rate for very long experienced absolute deprivation, only mildly elevated by modern social state support. And the elites experience relative poverty, the worst kind of poverty in some respects (for apparently there is nothing worse than someone else having a better gadget or trophy – there are today 20 streets in SA with average house prices >R20m – imagine the pain of not living there).

In the midst of so much genuine pain, with a third of SA labour force unemployed or so discouraged it no longer counts itself part of anything, with more than half our youth in this predicament, daily talk of credit downrating to junk, many more labour sheddings to come across the economy, and even higher tax and interest burdens looming, we still continue to experience in some respects a remarkable prosperity.

Short Note                                                                              24 March 2016

Rand hops along   

by Cees Bruggemans          words 560

The Rand has had a good short week, not weakening dramatically or giving any inkling of strengthening dramatically further. No Bulls or Bears, rather more a bunny (anticipating Easter?), hopping around indecisively in 15.20-15.50:$ and 17-17.40:€ territory.

Clearly, the Rand is mainly at present driven by global considerations, meaning dovish central bank actions such as ECB providing more liquidity support and the Fed lowering its dot-rate trajectory (two rate hikes this year rather than the earlier signaled four), with SARB action (raising by 0.75% in January-March) underwriting our credibility.

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