Identifier
Created
Classification
Origin
09PRETORIA71
2009-01-14 15:03:00
UNCLASSIFIED
Embassy Pretoria
Cable title:
QUARTERLY REVIEW OF THE SOUTH AFRICAN ECONOMY WITH KEY
how-toVZCZCXRO6680 RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN DE RUEHSA #0071/01 0141503 ZNR UUUUU ZZH R 141503Z JAN 09 FM AMEMBASSY PRETORIA TO RUEHC/SECSTATE WASHDC 6975 RUCPCIM/CIMS NTDB WASHDC INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE RUCPDC/DEPT OF COMMERCE WASHDC RUEATRS/DEPARTMENT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 06 PRETORIA 000071
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USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR TRINA RAND
DEPT PASS USTR FOR PCOLEMAN
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN EINV EMIN ENRG ETRD BEXP KTDB SF
SUBJECT: QUARTERLY REVIEW OF THE SOUTH AFRICAN ECONOMY WITH KEY
ECONOMIC STATISTICS
REF: STATE 08 134905
UNCLAS SECTION 01 OF 06 PRETORIA 000071
DEPT FOR AF/S; AF/EPS; EB/TPP
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR TRINA RAND
DEPT PASS USTR FOR PCOLEMAN
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN EINV EMIN ENRG ETRD BEXP KTDB SF
SUBJECT: QUARTERLY REVIEW OF THE SOUTH AFRICAN ECONOMY WITH KEY
ECONOMIC STATISTICS
REF: STATE 08 134905
1. (U) Summary: The deterioration in the global economic landscape
affected South Africa's third quarter 2008 economic performance.
Weaker international demand, falling commodity prices, and the tight
domestic economic environment resulted in the lowest quarterly real
GDP growth in ten years. Unemployment increased from 23.1 percent in
the second quarter to 23.2 percent in the third quarter. The
current account deficit increased from 7.3 percent of GDP in the
second quarter to 7.9 percent in the third quarter. A combination
of direct and other investment inflows financed the current account
deficit in the third quarter, while portfolio investment switched to
a net outflow. The outflow was prompted by global financial risk
and a reduction in commodity prices, which also resulted in a
significant depreciation in the rand during September and a
subsequent fluctuation around lower levels. Uncertainty and
volatility in global financial markets also affected the South
African Reserve Bank's reserve accumulation which led to a slight
decrease in foreign reserves in the third quarter of 2008.
CPIX-inflation peaked at 13.6 percent in August, before decelerating
to 12.1 percent in November, while growth in the broadly defined M3
money supply and credit extensions to the private sector also
decelerated further in the third quarter. Declining inflation and
credit demand together with weakening domestic and international
economic conditions allowed the South African Reserve Bank's
Monetary Policy Committee (MPC) to reduce interest rates by 50 basis
points in December. End Summary.
The sources for the following tables are from the South African
Reserve Bank (SARB),Statistics SA, and the Customs Department of
the South African Revenue Service. Some figures from previous
months may have changed as the result of statistical revisions.
--------------
I. MONTHLY FIGURES
--------------
2. EXCHANGE RATES
Rand/US Dollar Exchange Rate (monthly average):
2007 2008
Sep 7.13 Jan 6.99 May 7.62 Sep 8.05
Oct 6.77 Feb 7.64 Jun 7.92 Oct 9.67
Nov 6.70 Mar 7.98 Jul 7.64 Nov 10.12
Dec 6.83 Apr 7.79 Aug 7.66 Dec 9.94
Trade-Weighted Rand (monthly average; 2000 = 100):
2007 2008
Sep 75.82 Jan 74.68 May 66.29 Sep 66.11
Oct 78.65 Feb 67.98 Jun 63.85 Oct 57.32
Nov 77.92 Mar 63.13 Jul 65.69 Nov 56.61
Dec 77.03 Apr 64.31 Aug 67.66 Dec 56.73
Comment: The rand depreciated by 31.5 percent against the dollar and
25.2 percent against the trade-weighted average exchange rate of the
rand in 2008. The sharp decline in the exchange rate was caused by
global financial turmoil, with investors rechanneling funds to
familiar, mature markets, as well as by the drop in international
commodity prices, which constitute a large percentage of South
Africa's exports. The significant appreciation of the US dollar
resulted from increased investment in US assets by risk-averse
investors. The movement in the rand was not unique as most
commodity-producing, emerging-market countries with large
current-account deficits experienced significant declines in their
currencies. End Comment.
3. INFLATION (year-on-year, not seasonally adjusted)
Q3. INFLATION (year-on-year, not seasonally adjusted)
2008
Jul Aug Sep Oct Nov
CPI 13.4 13.7 13.1 12.1 11.8
CPIX 13.0 13.6 13.0 12.4 12.1
PPI 18.9 19.1 16.0 14.5 12.6
Comment: Almost all inflation-targeting countries, including South
Africa, continue to experience inflation rates in excess of their
inflation targets. South Africa's inflation was primarily driven by
the rising prices of energy and food. CPIX-inflation (CPI minus
mortgage interest) peaked at 13.6 percent in August, more than
double the upper limit of the inflation target range of 3 to 6
percent, before decelerating to 12.1 percent in November. Producer
price inflation was 19.1 percent in August, the highest rate in 22
years, before decelerating to 12.6 percent in November. The
Monetary Policy Committee's (MPC's) most recent central inflation
PRETORIA 00000071 002 OF 006
forecast projects that inflation will continue its downward
trajectory and return to within the target range in the third
quarter of 2009. Inflation is expected to average 6.2 percent and
5.6 percent in 2009 and 2010, respectively. Monthly inflation is
expected to drop by as mush as 3 percent in early 2009, when StatsSA
implements a new inflation basket that gives less importance to food
and fuel costs. The MPC highlighted the exchange rate as the most
significant upside risk to the inflation outlook. End Comment.
4. MONEY AGGREGATES (percentage change over 12 months)
2008
Jul Aug Sep Oct Nov
M1 7.64 2.40 4.57 4.67 2.61
M2 13.86 9.45 10.17 11.61 11.76
M3 18.10 15.42 15.23 15.59 16.26
Comment: After a two-year period of high growth in the broadly
defined money supply (M3),some moderation set in towards the end of
2007 and became more pronounced in 2008. The deceleration in M3
growth reflected tighter credit conditions, diminishing wealth
effects as asset prices receded, and slower underlying growth in
income and expenditure. End Comment.
5. DOMESTIC CREDIT EXTENSION TO THE PRIVATE SECTOR (percentage
change over 12 months)
2008
Jul Aug Sep Oct Nov
19.43 18.52 16.28 16.36 15.30
Comment: Growth in private sector credit extension continued to
moderate amid tougher economic conditions and tighter credit
conditions. The progressive tightening in the monetary policy
stance, which began in the middle of 2006, has slowly but surely
reduced credit demand by households and corporate sectors.
Furthermore, consumers' purchasing power was eroded by inflation,
household balance sheets were undermined by stagnant house prices
and volatile financial markets, and lending standards were raised by
the National Credit Act (NCA). Economists believe this downward
trend in credit extension will continue in 2009. In a typical
credit cycle, credit growth starts rising only 12 to 18 months after
the first cut in interest rates. Consequently, the December
interest rate cut is not expected to bolster credit growth until the
first half of 2010. However, some economists expect that the 2010
World Cup may cause a "feel good" reaction that would accelerate the
expected consumer response to lower interest rates. End Comment.
6. KEY INTEREST RATES (at end of month)
2007 Aug Sep Oct Nov Dec
SARB Repo Rate 12.00 12.00 12.00 12.00 11.50
Prime Overdraft 15.50 15.50 15.50 15.50 15.00
Rate
Comment: The South African Reserve Bank's Monetary Policy Committee
(MPC) reduced the key policy interest rate, the repo rate, by 50
basis points to 11.5 percent in December, ending a period of
unchanged monetary policy during its August and October meetings.
The rate cut was made possible by declining domestic inflation and
weakening domestic and international demand. Most analysts believe
there will be further interest rate cuts in 2009. End Comment.
7. MERCHANDISE TRADE ACCOUNT (R millions)
--------------
2008 EXPORTS IMPORTS TRADE BALANCE
Jan 39,356.8 49,573.2 -10,216.4
Feb 46,946.3 52,766.1 -5,819.8
QFeb 46,946.3 52,766.1 -5,819.8
Mar 51,150.9 56,181.0 -5,030.1
Apr 56,174.3 66,169.0 -9,994.7
May 56,240.5 57,900.0 -1,659.5
Jun 60,159.9 60,343.8 -183.9
Jul 61,268.2 75,599.6 -14,331.4
Aug 60,390.9 65,514.4 -5,123.5
Sep 61,067.3 68,179.2 -7,111.9
Oct 65,652.6 75,445.3 -9,792.7
Nov 53,877.9 65,944.3 -12,066.4
TOTAL (1) 609,463.0 693,641.2 -84,178.2
JAN - NOV 2007
TOTAL (1) 449,357.9 517,410.7 -68,052.7
(1) Total After Adjustments (year-to-date)
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Comment: The trade balance improved during the first half of the
year as a result of growing merchandise exports, but deteriorated
during the second half due to rising imports. Merchandise export
growth stagnated in the third quarter due the slowdown in global
demand and the substantial decline in international commodity
prices. Sluggish growth in export volumes was recorded in the
subcategory for motor vehicles and transport equipment, while the
volume of exported machinery, electrical equipment and precious
metals receded in the third quarter. Merchandise imports increased
in the third quarter despite the moderation in domestic economic
activity and more stringent international credit conditions.
Economists expect the trade balance to narrow in 2009 as weak
domestic spending contains import volumes and the global recession
keeps import prices under control. Export volumes and prices will
also be impacted by the global downturn, but exporters will receive
some support from a weaker rand. End Comment.
8. FOREIGN RESERVES ($ billions)
--------------
2008
Jul Aug Sep Oct Nov
SARB Gross Gold and
Foreign Reserves 35.00 34.33 34.42 32.91 33.22
SARB Net Open Forward
Position 34.17 33.50 33.64 32.11 32.58
Comment: South Africa's gross foreign reserves decreased slightly
in the third quarter of 2008. Valuation changes rather than outflows
caused these declines. Uncertainty and volatility in global
financial markets inhibited the SARB's natural tendency to
accumulate reserves. Economists expect South Africa's reserve
position to remain under pressure in 2009, given the weakness of the
rand and volatility in financial markets. End Comment.
--------------
II. QUARTERLY FIGURES
--------------
9. REAL GROSS DOMESTIC PRODUCT (percent change, seasonally adjusted
and annualized)
-------------- --------------
2007 2008
Q3 Q4 Q1 Q2 Q3
-------------- --------------
Primary Sector 1.7 1.2 -14.5 19.2 -0.5
Agriculture 7.1 15.5 16.2 19.4 16.1
Mining -0.4 -4.4 -25.8 19.2 -8.0
Secondary Sector 1.6 9.4 1.2 11.8 -2.6
Manufacturing -1.4 9.0 -0.6 14.3 -6.9
Electricity 3.6 -0.8 -5.8 -2.1 3.0
Construction 15.5 17.8 13.9 9.1 15.0
Tertiary Sector 6.1 4.7 3.7 1.6 1.5
Trade & catering 4.4 2.0 4.1 -4.0 -6.9
Transport & Comm. 4.5 3.6 3.4 4.3 4.5
Finance 10.4 8.0 2.6 3.3 3.2
Government 3.7 4.3 4.6 2.5 3.9
-------------- --------------
TOTAL 4.5 5.4 1.6 5.1 0.2
-------------- --------------
Comment: South Africa's real GDP growth slowed noticeably in the
third quarter of 2008, recording the lowest quarterly growth rate in
ten years. The sluggish growth was visible in all the major
goods-producing sectors of the economy.
Primary sector: The decline in economic activity in the primary
sector in the third quarter was primarily the result of a decline in
mining production, in particular, in platinum-group metals, gold,
Qmining production, in particular, in platinum-group metals, gold,
diamonds, and coal. Lower growth in the third quarter also
reflected the statistical effect of the high base established in the
second quarter, and was exacerbated by weaker international demand
and falling commodity prices. Platinum output was adversely
affected by intensive maintenance programs usually conducted in
February, safety-related shutdowns and one-day strikes. In
contrast, the agricultural sector made a positive contribution to
overall growth in the third quarter, benefiting from increased
planting of field crops and bolstered by favorable weather
conditions.
The result was a bumper maize crop.
PRETORIA 00000071 004 OF 006
Secondary sector: Growth in the secondary sector turned negative in
the third quarter, mainly due to a decline in manufacturing output.
The decline in manufacturing was caused by slowing domestic demand,
falling commodity prices, and decelerating global economic growth.
Notably slower growth was observed in the subsectors for motor
vehicles, parts and accessories, textiles, clothing, leather and
footwear, and food and beverages. The domestic demand for these
products was probably affected by the sluggish growth in real
income, higher interest rates, and already high debt levels, which
inhibited the take-up of more credit. However, the construction
sector remained buoyant in the third quarter, benefiting from the
upgrading of existing infrastructure and large projects such as the
Gautrain, power stations, roads, sport stadiums and related
infrastructure developments for the 2010 FIFA World Cup under
construction.
Tertiary sector: The slower pace of growth in the tertiary sector
reflected a slowdown in the trade sector. This sector slipped into
a technical recession following negative growth in the second and
third quarters. Tighter credit conditions and inflationary
pressures negatively affected consumer spending and consumer
confidence levels in the third quarter of 2008. Growth in the
financial services sector, the largest sector of the economy,
moderated marginally in the third quarter. This was due to a
moderation in the real output in the banking sector, which was
partly offset by higher trading volumes in equities, bonds and other
financial market instruments, as investors repositioned themselves
in a volatile market. The increase value added in the general
government sector was largely due to increased employment in the
sector. End Comment.
10. BALANCE ON CURRENT ACCOUNT (R millions)
-------------- --------------
2007 2008
Q4 Q1 Q2 Q3
-------------- --------------
Merchandise Exp. 133,320 138,082 172,201 178,975
Net Gold Exports 11,268 11,516 11,877 10,239
Merchandise Imp. 152,260 161,474 188,411 204,626
Income Payments 33,497 31,608 29,566 34,380
Service payment 30,418 30,579 36,642 36,241
-------------- --------------
Current Account -37,431 -42,773 -40,485 -52,827
-------------- --------------
Current Account
Deficit/GDP -7.2 -9.2 -7.3 -7.9
(percentage)
Comment: The widening deficit on the current account in the third
quarter reflected the impact of the slowdown in global economic
activity and a substantial decline in international commodity prices
as well as an increase in merchandise imports. The decline in
global demand affected both the volume and prices of merchandise
exports adversely. Over the same period, the growth in the value of
merchandise imports also slowed alongside the moderation in domestic
economic activity and more stringent international credit
conditions. The trade deficit was further exacerbated by higher
income payments accruing to non-resident investors on their
investment in domestic securities. End Comment.
11. BALANCE ON FINANCIAL ACCOUNT (R millions)
-------------- --------------
Q -------------- --------------
2007 2008
Q4 Q1 Q2 Q3
-------------- --------------
Direct Investment 7,401 35,432 1,310 16,920
Portfolio Investment -6,055 -20,572 22,466 -12,970
Other Investment 35,280 40,525 14,798 20,550
-------------- --------------
Financial Account 36,507 55,385 38,574 24,500
-------------- --------------
Comment: South Africa continued to attract capital inflows to
finance the current account deficit in the third quarter of 2008.
As in the first quarter of 2008, when portfolio investments turned
negative, capital inflows in the third quarter were from direct and
other investment capital. The outflow of portfolio capital
reflected conditions in the global capital markets where foreign
PRETORIA 00000071 005 OF 006
investors limited their exposure to emerging-market assets and
transferred funds to familiar home markets. Other investment flows
consisted mainly of short-term foreign loans drawn upon by South
African banks, as well as non-resident investors' foreign-currency
denominated deposits with these banks. End Comment.
12. KEY LABOR MARKET VARIABLES (thousand)
--------------
2007 2008
Sep Q1 Q2 Q3
-------------- --------------
Employed 13,234 13,623 13,729 13,655
Unemployed 3,945 4,191 4,114 4,122
Total Labor Force 17,178 17,814 17,844 17,777
Not Econ. Active 13,235 12,794 12,861 13,024
Population 15-64 30,413 30,608 30,705 30,801
-------------- --------------
Unemployment rate 23.0 23.5 23.1 23.2
(percentage)
Absorption rate 43.5 44.5 44.7 44.3
(Employed/population ratio)
Comment: Unemployment in South Africa increased from 23.1 percent in
the second quarter of 2008 to 23.2 percent in the third quarter.
The number of employed persons decreased by 74,000 to 13.6 million.
The decrease in employment was primarily due to a drop in informal
sector employment, which more than offset a gain of 24,000 new jobs
in the formal sector and the creation of 89,000 new jobs by private
households. The prospect of slower economic growth in 2009 will
slow employment growth and result in job losses in some sectors of
the economy. End Comment.
--------------
III. ANNUAL FIGURES
--------------
13. GROSS DOMESTIC PRODUCT
(R millions, at market prices)
-------------- --------------
2005 2006 2007
-------------- --------------
Nominal GDP 1,543,976 1,745,217 1,999,086
-------------- --------------
GDP Growth Rate 5.0 5.3 5.1
(constant 2000 prices, y-o-y growth percentage)
Comment: Strong growth in 2007 was due to high commodity prices,
strong domestic consumer demand, and increased fixed capital
investment. Economists expect economic growth to have slowed to
between 3 percent and 4 percent in 2008. This slowdown is due to
the sustained monetary policy tightening since mid-2006, energy
supply constraints, and slower global growth. End Comment.
14. FINANCING OF GROSS CAPITAL FORMATION (R millions)
-------------- --------------
2005 2006 2007
-------------- --------------
Savings by Households 1,296 -5,088 -6,827
Corporate Savings 40,265 29,322 14,914
Government Savings -12,217 5,953 27,810
Consumption of fixed 190,705 219,506 256,373
capital
-------------- --------------
Gross savings 220,049 249,693 292,270
Foreign Investment 62,179 110,198 146,076
-------------- --------------
Gross Capital Formation 282,228 359,891 438,346
-------------- --------------
Gross
Savings/GDP 14.3 14.3 14.6
(percentage)
Dependence on Foreign 22.0 30.6 33.3
QDependence on Foreign 22.0 30.6 33.3
Investment
PRETORIA 00000071 006 OF 006
Foreign Investment/GDP 4.0 6.3 7.3
(percentage)
Gross Capital
Formation/GDP 17.1 18.8 21.1
(percentage)
Comment: The savings rates for households and corporations
continued to decline, while the government increased its savings
rate in 2007. The government's higher savings rate was mainly due
to an increase in tax revenue which more than offset growth in
expenditure. Notwithstanding the minor improvement in the national
savings/GDP ratio, South Africa's dependence on foreign capital to
finance gross capital formation increased to its highest rate ever
in 2007. Investment programs by private business enterprises,
public corporations, and the general government boosted growth in
gross capital formation. The ratio of gross capital formation to
GDP increased to its highest level since 1985 and is approaching the
SAG's target of 25 percent. Government savings are expected to
decrease, if not end, in 2009, adding to even greater dependence on
foreign capital to finance gross capital formation. End Comment
15. NATIONAL BUDGET (R billions)
--------------
Fiscal Year Ending 31 March:
2005 2006 2007 2008
-------------- --------------
Total Revenue 347.4 411.2 482.7 559.8
Total Expenditure 368.6 416.8 470.2 541.7
Budget Balance -21.2 -5.6 12.5 18.1
-------------- --------------
Budget Balance/GDP -1.5 -0.4 0.7 0.9
Comment: The fiscal surplus in 2008, only the second since 1960,
was the result of a large increase in tax revenue (owing to strong
economic activity and stepped up revenue enforcement) that was only
partly absorbed by additional expenditure. The fiscal surplus is
expected to decline, if not disappear in 2009. End Comment.
16. GOVERNMENT DEBT (R billions)
--------------
Fiscal Year Ending 31 March:
2005 2006 2007 2008
-------------- --------------
Total Debt 501.7 528.5 551.9 571.7
of Which:
-- Domestic 431.8 461.2 469.0 475.2
-- Foreign 69.4 66.8 82.6 96.2
-- Other debt 0.5 0.4 0.3 0.2
Debt Service Cost 48.9 50.9 52.2 52.8
-------------- --------------
Government Debt/GDP 36.8 33.2 28.9 25.4
(percentage)
Debt Service Cost/GDP 3.4 3.2 2.9 2.6
(percentage)
Comment: The decline in government debt as a percentage of GDP can
be attributed to the rapid growth of the economy and the creation of
a fiscal surplus. Debt service costs have shown a steadily
declining trend since peaking at 5.6 percent of GDP in the 1999
fiscal year. The decline in debt service costs has created the
necessary "fiscal space" to finance social priorities. As a result,
government spending on social priorities has more than doubled since
2003. End Comment.
-------------- --------------
For additional information please consult the following websites:
South African Reserve Bank
South African Revenue Service
Statistics South Africa
QStatistics South Africa
National Treasury
BOST
DEPT FOR AF/S; AF/EPS; EB/TPP
USDOC FOR 4510/ITA/IEP/ANESA/OA/JDIEMOND
TREASURY FOR TRINA RAND
DEPT PASS USTR FOR PCOLEMAN
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN EINV EMIN ENRG ETRD BEXP KTDB SF
SUBJECT: QUARTERLY REVIEW OF THE SOUTH AFRICAN ECONOMY WITH KEY
ECONOMIC STATISTICS
REF: STATE 08 134905
1. (U) Summary: The deterioration in the global economic landscape
affected South Africa's third quarter 2008 economic performance.
Weaker international demand, falling commodity prices, and the tight
domestic economic environment resulted in the lowest quarterly real
GDP growth in ten years. Unemployment increased from 23.1 percent in
the second quarter to 23.2 percent in the third quarter. The
current account deficit increased from 7.3 percent of GDP in the
second quarter to 7.9 percent in the third quarter. A combination
of direct and other investment inflows financed the current account
deficit in the third quarter, while portfolio investment switched to
a net outflow. The outflow was prompted by global financial risk
and a reduction in commodity prices, which also resulted in a
significant depreciation in the rand during September and a
subsequent fluctuation around lower levels. Uncertainty and
volatility in global financial markets also affected the South
African Reserve Bank's reserve accumulation which led to a slight
decrease in foreign reserves in the third quarter of 2008.
CPIX-inflation peaked at 13.6 percent in August, before decelerating
to 12.1 percent in November, while growth in the broadly defined M3
money supply and credit extensions to the private sector also
decelerated further in the third quarter. Declining inflation and
credit demand together with weakening domestic and international
economic conditions allowed the South African Reserve Bank's
Monetary Policy Committee (MPC) to reduce interest rates by 50 basis
points in December. End Summary.
The sources for the following tables are from the South African
Reserve Bank (SARB),Statistics SA, and the Customs Department of
the South African Revenue Service. Some figures from previous
months may have changed as the result of statistical revisions.
--------------
I. MONTHLY FIGURES
--------------
2. EXCHANGE RATES
Rand/US Dollar Exchange Rate (monthly average):
2007 2008
Sep 7.13 Jan 6.99 May 7.62 Sep 8.05
Oct 6.77 Feb 7.64 Jun 7.92 Oct 9.67
Nov 6.70 Mar 7.98 Jul 7.64 Nov 10.12
Dec 6.83 Apr 7.79 Aug 7.66 Dec 9.94
Trade-Weighted Rand (monthly average; 2000 = 100):
2007 2008
Sep 75.82 Jan 74.68 May 66.29 Sep 66.11
Oct 78.65 Feb 67.98 Jun 63.85 Oct 57.32
Nov 77.92 Mar 63.13 Jul 65.69 Nov 56.61
Dec 77.03 Apr 64.31 Aug 67.66 Dec 56.73
Comment: The rand depreciated by 31.5 percent against the dollar and
25.2 percent against the trade-weighted average exchange rate of the
rand in 2008. The sharp decline in the exchange rate was caused by
global financial turmoil, with investors rechanneling funds to
familiar, mature markets, as well as by the drop in international
commodity prices, which constitute a large percentage of South
Africa's exports. The significant appreciation of the US dollar
resulted from increased investment in US assets by risk-averse
investors. The movement in the rand was not unique as most
commodity-producing, emerging-market countries with large
current-account deficits experienced significant declines in their
currencies. End Comment.
3. INFLATION (year-on-year, not seasonally adjusted)
Q3. INFLATION (year-on-year, not seasonally adjusted)
2008
Jul Aug Sep Oct Nov
CPI 13.4 13.7 13.1 12.1 11.8
CPIX 13.0 13.6 13.0 12.4 12.1
PPI 18.9 19.1 16.0 14.5 12.6
Comment: Almost all inflation-targeting countries, including South
Africa, continue to experience inflation rates in excess of their
inflation targets. South Africa's inflation was primarily driven by
the rising prices of energy and food. CPIX-inflation (CPI minus
mortgage interest) peaked at 13.6 percent in August, more than
double the upper limit of the inflation target range of 3 to 6
percent, before decelerating to 12.1 percent in November. Producer
price inflation was 19.1 percent in August, the highest rate in 22
years, before decelerating to 12.6 percent in November. The
Monetary Policy Committee's (MPC's) most recent central inflation
PRETORIA 00000071 002 OF 006
forecast projects that inflation will continue its downward
trajectory and return to within the target range in the third
quarter of 2009. Inflation is expected to average 6.2 percent and
5.6 percent in 2009 and 2010, respectively. Monthly inflation is
expected to drop by as mush as 3 percent in early 2009, when StatsSA
implements a new inflation basket that gives less importance to food
and fuel costs. The MPC highlighted the exchange rate as the most
significant upside risk to the inflation outlook. End Comment.
4. MONEY AGGREGATES (percentage change over 12 months)
2008
Jul Aug Sep Oct Nov
M1 7.64 2.40 4.57 4.67 2.61
M2 13.86 9.45 10.17 11.61 11.76
M3 18.10 15.42 15.23 15.59 16.26
Comment: After a two-year period of high growth in the broadly
defined money supply (M3),some moderation set in towards the end of
2007 and became more pronounced in 2008. The deceleration in M3
growth reflected tighter credit conditions, diminishing wealth
effects as asset prices receded, and slower underlying growth in
income and expenditure. End Comment.
5. DOMESTIC CREDIT EXTENSION TO THE PRIVATE SECTOR (percentage
change over 12 months)
2008
Jul Aug Sep Oct Nov
19.43 18.52 16.28 16.36 15.30
Comment: Growth in private sector credit extension continued to
moderate amid tougher economic conditions and tighter credit
conditions. The progressive tightening in the monetary policy
stance, which began in the middle of 2006, has slowly but surely
reduced credit demand by households and corporate sectors.
Furthermore, consumers' purchasing power was eroded by inflation,
household balance sheets were undermined by stagnant house prices
and volatile financial markets, and lending standards were raised by
the National Credit Act (NCA). Economists believe this downward
trend in credit extension will continue in 2009. In a typical
credit cycle, credit growth starts rising only 12 to 18 months after
the first cut in interest rates. Consequently, the December
interest rate cut is not expected to bolster credit growth until the
first half of 2010. However, some economists expect that the 2010
World Cup may cause a "feel good" reaction that would accelerate the
expected consumer response to lower interest rates. End Comment.
6. KEY INTEREST RATES (at end of month)
2007 Aug Sep Oct Nov Dec
SARB Repo Rate 12.00 12.00 12.00 12.00 11.50
Prime Overdraft 15.50 15.50 15.50 15.50 15.00
Rate
Comment: The South African Reserve Bank's Monetary Policy Committee
(MPC) reduced the key policy interest rate, the repo rate, by 50
basis points to 11.5 percent in December, ending a period of
unchanged monetary policy during its August and October meetings.
The rate cut was made possible by declining domestic inflation and
weakening domestic and international demand. Most analysts believe
there will be further interest rate cuts in 2009. End Comment.
7. MERCHANDISE TRADE ACCOUNT (R millions)
--------------
2008 EXPORTS IMPORTS TRADE BALANCE
Jan 39,356.8 49,573.2 -10,216.4
Feb 46,946.3 52,766.1 -5,819.8
QFeb 46,946.3 52,766.1 -5,819.8
Mar 51,150.9 56,181.0 -5,030.1
Apr 56,174.3 66,169.0 -9,994.7
May 56,240.5 57,900.0 -1,659.5
Jun 60,159.9 60,343.8 -183.9
Jul 61,268.2 75,599.6 -14,331.4
Aug 60,390.9 65,514.4 -5,123.5
Sep 61,067.3 68,179.2 -7,111.9
Oct 65,652.6 75,445.3 -9,792.7
Nov 53,877.9 65,944.3 -12,066.4
TOTAL (1) 609,463.0 693,641.2 -84,178.2
JAN - NOV 2007
TOTAL (1) 449,357.9 517,410.7 -68,052.7
(1) Total After Adjustments (year-to-date)
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Comment: The trade balance improved during the first half of the
year as a result of growing merchandise exports, but deteriorated
during the second half due to rising imports. Merchandise export
growth stagnated in the third quarter due the slowdown in global
demand and the substantial decline in international commodity
prices. Sluggish growth in export volumes was recorded in the
subcategory for motor vehicles and transport equipment, while the
volume of exported machinery, electrical equipment and precious
metals receded in the third quarter. Merchandise imports increased
in the third quarter despite the moderation in domestic economic
activity and more stringent international credit conditions.
Economists expect the trade balance to narrow in 2009 as weak
domestic spending contains import volumes and the global recession
keeps import prices under control. Export volumes and prices will
also be impacted by the global downturn, but exporters will receive
some support from a weaker rand. End Comment.
8. FOREIGN RESERVES ($ billions)
--------------
2008
Jul Aug Sep Oct Nov
SARB Gross Gold and
Foreign Reserves 35.00 34.33 34.42 32.91 33.22
SARB Net Open Forward
Position 34.17 33.50 33.64 32.11 32.58
Comment: South Africa's gross foreign reserves decreased slightly
in the third quarter of 2008. Valuation changes rather than outflows
caused these declines. Uncertainty and volatility in global
financial markets inhibited the SARB's natural tendency to
accumulate reserves. Economists expect South Africa's reserve
position to remain under pressure in 2009, given the weakness of the
rand and volatility in financial markets. End Comment.
--------------
II. QUARTERLY FIGURES
--------------
9. REAL GROSS DOMESTIC PRODUCT (percent change, seasonally adjusted
and annualized)
-------------- --------------
2007 2008
Q3 Q4 Q1 Q2 Q3
-------------- --------------
Primary Sector 1.7 1.2 -14.5 19.2 -0.5
Agriculture 7.1 15.5 16.2 19.4 16.1
Mining -0.4 -4.4 -25.8 19.2 -8.0
Secondary Sector 1.6 9.4 1.2 11.8 -2.6
Manufacturing -1.4 9.0 -0.6 14.3 -6.9
Electricity 3.6 -0.8 -5.8 -2.1 3.0
Construction 15.5 17.8 13.9 9.1 15.0
Tertiary Sector 6.1 4.7 3.7 1.6 1.5
Trade & catering 4.4 2.0 4.1 -4.0 -6.9
Transport & Comm. 4.5 3.6 3.4 4.3 4.5
Finance 10.4 8.0 2.6 3.3 3.2
Government 3.7 4.3 4.6 2.5 3.9
-------------- --------------
TOTAL 4.5 5.4 1.6 5.1 0.2
-------------- --------------
Comment: South Africa's real GDP growth slowed noticeably in the
third quarter of 2008, recording the lowest quarterly growth rate in
ten years. The sluggish growth was visible in all the major
goods-producing sectors of the economy.
Primary sector: The decline in economic activity in the primary
sector in the third quarter was primarily the result of a decline in
mining production, in particular, in platinum-group metals, gold,
Qmining production, in particular, in platinum-group metals, gold,
diamonds, and coal. Lower growth in the third quarter also
reflected the statistical effect of the high base established in the
second quarter, and was exacerbated by weaker international demand
and falling commodity prices. Platinum output was adversely
affected by intensive maintenance programs usually conducted in
February, safety-related shutdowns and one-day strikes. In
contrast, the agricultural sector made a positive contribution to
overall growth in the third quarter, benefiting from increased
planting of field crops and bolstered by favorable weather
conditions.
The result was a bumper maize crop.
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Secondary sector: Growth in the secondary sector turned negative in
the third quarter, mainly due to a decline in manufacturing output.
The decline in manufacturing was caused by slowing domestic demand,
falling commodity prices, and decelerating global economic growth.
Notably slower growth was observed in the subsectors for motor
vehicles, parts and accessories, textiles, clothing, leather and
footwear, and food and beverages. The domestic demand for these
products was probably affected by the sluggish growth in real
income, higher interest rates, and already high debt levels, which
inhibited the take-up of more credit. However, the construction
sector remained buoyant in the third quarter, benefiting from the
upgrading of existing infrastructure and large projects such as the
Gautrain, power stations, roads, sport stadiums and related
infrastructure developments for the 2010 FIFA World Cup under
construction.
Tertiary sector: The slower pace of growth in the tertiary sector
reflected a slowdown in the trade sector. This sector slipped into
a technical recession following negative growth in the second and
third quarters. Tighter credit conditions and inflationary
pressures negatively affected consumer spending and consumer
confidence levels in the third quarter of 2008. Growth in the
financial services sector, the largest sector of the economy,
moderated marginally in the third quarter. This was due to a
moderation in the real output in the banking sector, which was
partly offset by higher trading volumes in equities, bonds and other
financial market instruments, as investors repositioned themselves
in a volatile market. The increase value added in the general
government sector was largely due to increased employment in the
sector. End Comment.
10. BALANCE ON CURRENT ACCOUNT (R millions)
-------------- --------------
2007 2008
Q4 Q1 Q2 Q3
-------------- --------------
Merchandise Exp. 133,320 138,082 172,201 178,975
Net Gold Exports 11,268 11,516 11,877 10,239
Merchandise Imp. 152,260 161,474 188,411 204,626
Income Payments 33,497 31,608 29,566 34,380
Service payment 30,418 30,579 36,642 36,241
-------------- --------------
Current Account -37,431 -42,773 -40,485 -52,827
-------------- --------------
Current Account
Deficit/GDP -7.2 -9.2 -7.3 -7.9
(percentage)
Comment: The widening deficit on the current account in the third
quarter reflected the impact of the slowdown in global economic
activity and a substantial decline in international commodity prices
as well as an increase in merchandise imports. The decline in
global demand affected both the volume and prices of merchandise
exports adversely. Over the same period, the growth in the value of
merchandise imports also slowed alongside the moderation in domestic
economic activity and more stringent international credit
conditions. The trade deficit was further exacerbated by higher
income payments accruing to non-resident investors on their
investment in domestic securities. End Comment.
11. BALANCE ON FINANCIAL ACCOUNT (R millions)
-------------- --------------
Q -------------- --------------
2007 2008
Q4 Q1 Q2 Q3
-------------- --------------
Direct Investment 7,401 35,432 1,310 16,920
Portfolio Investment -6,055 -20,572 22,466 -12,970
Other Investment 35,280 40,525 14,798 20,550
-------------- --------------
Financial Account 36,507 55,385 38,574 24,500
-------------- --------------
Comment: South Africa continued to attract capital inflows to
finance the current account deficit in the third quarter of 2008.
As in the first quarter of 2008, when portfolio investments turned
negative, capital inflows in the third quarter were from direct and
other investment capital. The outflow of portfolio capital
reflected conditions in the global capital markets where foreign
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investors limited their exposure to emerging-market assets and
transferred funds to familiar home markets. Other investment flows
consisted mainly of short-term foreign loans drawn upon by South
African banks, as well as non-resident investors' foreign-currency
denominated deposits with these banks. End Comment.
12. KEY LABOR MARKET VARIABLES (thousand)
--------------
2007 2008
Sep Q1 Q2 Q3
-------------- --------------
Employed 13,234 13,623 13,729 13,655
Unemployed 3,945 4,191 4,114 4,122
Total Labor Force 17,178 17,814 17,844 17,777
Not Econ. Active 13,235 12,794 12,861 13,024
Population 15-64 30,413 30,608 30,705 30,801
-------------- --------------
Unemployment rate 23.0 23.5 23.1 23.2
(percentage)
Absorption rate 43.5 44.5 44.7 44.3
(Employed/population ratio)
Comment: Unemployment in South Africa increased from 23.1 percent in
the second quarter of 2008 to 23.2 percent in the third quarter.
The number of employed persons decreased by 74,000 to 13.6 million.
The decrease in employment was primarily due to a drop in informal
sector employment, which more than offset a gain of 24,000 new jobs
in the formal sector and the creation of 89,000 new jobs by private
households. The prospect of slower economic growth in 2009 will
slow employment growth and result in job losses in some sectors of
the economy. End Comment.
--------------
III. ANNUAL FIGURES
--------------
13. GROSS DOMESTIC PRODUCT
(R millions, at market prices)
-------------- --------------
2005 2006 2007
-------------- --------------
Nominal GDP 1,543,976 1,745,217 1,999,086
-------------- --------------
GDP Growth Rate 5.0 5.3 5.1
(constant 2000 prices, y-o-y growth percentage)
Comment: Strong growth in 2007 was due to high commodity prices,
strong domestic consumer demand, and increased fixed capital
investment. Economists expect economic growth to have slowed to
between 3 percent and 4 percent in 2008. This slowdown is due to
the sustained monetary policy tightening since mid-2006, energy
supply constraints, and slower global growth. End Comment.
14. FINANCING OF GROSS CAPITAL FORMATION (R millions)
-------------- --------------
2005 2006 2007
-------------- --------------
Savings by Households 1,296 -5,088 -6,827
Corporate Savings 40,265 29,322 14,914
Government Savings -12,217 5,953 27,810
Consumption of fixed 190,705 219,506 256,373
capital
-------------- --------------
Gross savings 220,049 249,693 292,270
Foreign Investment 62,179 110,198 146,076
-------------- --------------
Gross Capital Formation 282,228 359,891 438,346
-------------- --------------
Gross
Savings/GDP 14.3 14.3 14.6
(percentage)
Dependence on Foreign 22.0 30.6 33.3
QDependence on Foreign 22.0 30.6 33.3
Investment
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Foreign Investment/GDP 4.0 6.3 7.3
(percentage)
Gross Capital
Formation/GDP 17.1 18.8 21.1
(percentage)
Comment: The savings rates for households and corporations
continued to decline, while the government increased its savings
rate in 2007. The government's higher savings rate was mainly due
to an increase in tax revenue which more than offset growth in
expenditure. Notwithstanding the minor improvement in the national
savings/GDP ratio, South Africa's dependence on foreign capital to
finance gross capital formation increased to its highest rate ever
in 2007. Investment programs by private business enterprises,
public corporations, and the general government boosted growth in
gross capital formation. The ratio of gross capital formation to
GDP increased to its highest level since 1985 and is approaching the
SAG's target of 25 percent. Government savings are expected to
decrease, if not end, in 2009, adding to even greater dependence on
foreign capital to finance gross capital formation. End Comment
15. NATIONAL BUDGET (R billions)
--------------
Fiscal Year Ending 31 March:
2005 2006 2007 2008
-------------- --------------
Total Revenue 347.4 411.2 482.7 559.8
Total Expenditure 368.6 416.8 470.2 541.7
Budget Balance -21.2 -5.6 12.5 18.1
-------------- --------------
Budget Balance/GDP -1.5 -0.4 0.7 0.9
Comment: The fiscal surplus in 2008, only the second since 1960,
was the result of a large increase in tax revenue (owing to strong
economic activity and stepped up revenue enforcement) that was only
partly absorbed by additional expenditure. The fiscal surplus is
expected to decline, if not disappear in 2009. End Comment.
16. GOVERNMENT DEBT (R billions)
--------------
Fiscal Year Ending 31 March:
2005 2006 2007 2008
-------------- --------------
Total Debt 501.7 528.5 551.9 571.7
of Which:
-- Domestic 431.8 461.2 469.0 475.2
-- Foreign 69.4 66.8 82.6 96.2
-- Other debt 0.5 0.4 0.3 0.2
Debt Service Cost 48.9 50.9 52.2 52.8
-------------- --------------
Government Debt/GDP 36.8 33.2 28.9 25.4
(percentage)
Debt Service Cost/GDP 3.4 3.2 2.9 2.6
(percentage)
Comment: The decline in government debt as a percentage of GDP can
be attributed to the rapid growth of the economy and the creation of
a fiscal surplus. Debt service costs have shown a steadily
declining trend since peaking at 5.6 percent of GDP in the 1999
fiscal year. The decline in debt service costs has created the
necessary "fiscal space" to finance social priorities. As a result,
government spending on social priorities has more than doubled since
2003. End Comment.
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For additional information please consult the following websites:
South African Reserve Bank
South African Revenue Service
Statistics South Africa
QStatistics South Africa
National Treasury
BOST