Signals remain a mixed bag

On the economic front, the South African outlook continues to be mixed: gradual recovery from the recession in some spheres with several key economic indicators recording improvement, but offset by other indicators and developments with a negative bearing. The latest unemployment figures remain disturbing, and economists and the government have tempered recovery optimism; now, slower or strained growth is the word.

The following are some of the most recent developments providing a snapshot of the current state of the economy.

Car sales up: New car sales – a strong indicator of economic and consumer sentiment – went up sharply in May. The trend indicates that the recovery in the local car market is continuing after plummeting during the global recession. Aggregate industry vehicle sales rose to 39 176, up 35% on May 2009. Year-to-date sales are 24.6% ahead of last year's first five months, atmittedly from a very low base.

Household spending rising: Household spending is again rising strongly, albeit from a low base, and shows increasing consumer confidence. According to the South African Reserve Bank (SARB) June Quarterly Bulletin, household spending in all categories, except for services, increased markedly to an annualised rate of 5.7% in the first quarter of 2010, following an increase of 1.6% in the fourth quarter of 2009.

Bumper maize harvest: A 2009/10 season traders' production poll has predicted a bumper maize harvest for South Africa this year, the largest in nearly three decades. According to the poll, the country will harvest 13.52 million tonnes of maize. South Africa's closing maize stocks for the 2009/10 season went up 35% compared with the previous season. Maize futures moved lower following global markets. The government's Crop Estimates Committee will release its latest production figures on Thursday.

Improved inflation expectations: The second quarter survey of the Bureau for Economic Research (BER) shows financial analysts have lowered their consumer price index (CPI) expectations for this year to 5% from 5.5% in the first quarter and to 5.7% from 5.9% for next year. It left its 2012 estimates unchanged at 6%. Business and labour unions still expect inflation to remain above the official 3%-6% target range this year and next. This is of concern, as it plays a key role in the SARB's interest rate decisions.

Following the release of May CPI figures, certain economists anticipate that inflation may fall even further and bottom out around 4% soon. Statistics South Africa said CPI eased to its lowest level since May 2006 to reach 4.6%.

Producer inflation rises: South Africa's producer price index (PPI) quickened, however, to 6.8% year-on-year in May from 5.5% in April. On monthly basis, producer inflation, representing domestic output, was at 0.2% compared with 1.5% in April.

Reserve Bank rates: After a series of rates cuts between December 2008 and March this year, SARB governor Gill Marcus has signalled rates will stay on hold for some time, despite consumer inflation now having eased more than the Bank's monetary policy committee might have expected.

Electricity supply steady: Following the power outages and load-shedding of 2008, South African power utility Eskom says the electricity system was expected to continue to perform well despite increased electricity demand due to the cold weather. However, a strike at Eskom following failed wage negotiations could rapidly change the picture and cause chaos.

Massive World Cup spending: The latest new card-holder spending data from Visa shows that the South African economy is receiving a major injection from international tourists in the country for the 2010 Fifa Soccer World Cup. During the period preceding the kickoff of the event and during the first week of tournament matches, spending by international visitors on Visa-branded payment cards exceeded US$128 million (R974m), up 54% from US$83m (R629m) during the same period in 2009. The money spent by international visitors on their Visa credit, debit and prepaid cards during the first 10 days of the World Cup showed an increase of 81% over the same period in 2009.

Strained growth: SARB again warned in its latest Quarterly Bulletin that future economic growth will be strained, and stressed that the global focus has shifted from bolstering economic recovery to addressing fiscal and sovereign debt extremes. It expressed concerns around the sustainability of expansionary policies and the fact that the recovery in economic activity has not yet been reflected in rising aggregate employment numbers.

Liquidations rising: Liquidations are on the rise again in South Africa, with the total number of liquidations recorded for the first five months of 2010 having increased by 2.8% from 1640 to 1686 compared to 2009, says Statistics SA.

Current account deficit worsens: SARB said in its latest Quarterly Bulletin that the deficit on the current account widened more than expected in the first quarter, partly due to problems in the euro zone which curbed exports to South Africa’s largest trading bloc. The balance on the current account widened to 4.6% of gross domestic product in the first quarter, compared to 2.9% in the fourth quarter of last year. A survey conducted by I-Net Bridge predicted that South Africa's foreign trade balance with its non-Southern African Customs Union (SACU) trading partners will reach a R2.5-billion deficit in May from the R1.9-billion deficit of April.

Consumer confidence down: According to the latest MasterCard Worldwide Index of Consumer Confidence, South African consumer confidence continues its downward trend. South Africans are less confident than they were six months and a year ago. The latest survey at 58.6 points is the lowest score recorded since the survey was first conducted in 2004.

Massive youth unemployment: Youth unemployment is hampering economic recovery, with a massive 74% of people under the age of 24 unable to find work. Of the job losses experienced during the 2009/2010 recession, 75% was in respect of people under the age of 34. With the unemployment rate up from 13% in 1994 to the current 25%, the youth has clearly been the group who has lost out the most. The latest Adcorp Employment Quarterly update shows that 64% of unemployed people have been out of work for a year. The data further shows that in 2009/2010, 46% of all jobs created since 2000 were lost. Employment prospects in South Africa, particularly for the youth, therefore remain highly negative.

Growing discontent among the youth can already be observed in this group’s active participation in spreading township riots in protest at the government’s service delivery failure, as well as in high crime levels and in student unrest on campuses around the country.