Gauteng Business News

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Financial: SA Economy Remains in Dire Straits - Equity Markets Pick Up


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The provincial barometers published monthly by BoE Private Clients show that the sharp downward trend of the past few months continued in April and provide some perspective of the magnitude of the current recession.

The barometers, which measure business activity levels in Gauteng, the Western Cape, the Eastern Cape and the Free State, also highlight the fact that the economy of the Eastern Cape is in much deeper trouble than in the other provinces.

Economic activity in the private sector economy of Gauteng was 14,6% lower than in April last year. The Western Cape (-7,4%), Free State (-7,8%) and Eastern Cape (-17,1%) also continued their downward journey.

Gauteng and the Eastern Cape are the hardest hit owing to their respective exposure to the struggling vehicle manufacturing industry.

“If I was a weather forecaster, I would say big dark clouds are hanging over the economy, while strong winds and freezing temperatures lambaste individual provinces,” says Mike Schüssler, economist at and architect of the barometer project.

“Although there are no signs that the economy will lift its head in the near future, I think that activity levels would hit an all time low in April and May. The barometers for April already show this and I think May would see a similar trend. I expect that the environment may bottom out in June, after which a slow recovery process would start,” says Schüssler.

A sectoral analysis of the barometers show that virtually all economic sectors had a dismal April, although the climate in the manufacturing, financial, real estate and business services sectors could not really be much worse.

The financial sector saw a massive decline in activity levels in April. In Gauteng, the decline was 21,1%, 25,9% in the Eastern Cape, 12,7% in the Free State and 11,5% in the Western Cape. “The decline is the result of the crisis in the residential property market, where between 40% and 50% fewer properties were sold. This sector is really dead,” says Schüssler.

The manufacturing sector is in a similar precarious position.

Activity levels in Gauteng dipped by 14,8%, while the Eastern Cape slipped by 14,6%. The Free State (-6,4%) and Western Cape (-10,1%) also saw activity levels drop, but not as much as in the other two provinces.

“Manufacturing in Gauteng and the Eastern Cape suffer as a result of the downturn in the automotive manufacturing sector. This downward trend could be a prolonged one as the outlook for the sector remains bleak,” says Schüssler.

Despite this grim picture, there are some signs that the pressure on consumers and businesses are slowly abating. “Stress factors, such as the interest rate and inflation, are declining and this will alleviate the pressure on the economy. I expect that Gauteng will benefit the most from this as the residents of this province have the most debt. A decline in the interest rate and inflation should lead to an increase in consumer spending, which will inject life into the province’s economy.” says Schüssler.

At the same time, the South African equity market showed positive gains during May, in line with emerging market generally, and supports the possibility of an economic recovery later in the year.

“The market has had a good run but still seems to be looking past current recessionary conditions to the expected improved conditions in the second half of 2009 and beyond. One should look for a conversion of positive sentiment indicators to actual spending, both locally and abroad, for confirmation that the economy has bottomed and is recovering,” according to Daryll Owen, chief investment officer at BoE Private Clients.

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