Skip to content Broad-Based Weakness is Deeply Concerning
Commentary: 18 March 2019
The European Central Bank (ECB) has announced the biggest downward revision to its growth outlook since 2015. The Eurozone is now expected to expand by just 1.1% in 2019, down from the 1.7% previously expected, with risks tilted to the downside. This has prompted the Bank to reintroduce stimulus measures, barely three months after the end of its bond- buying programme. The ECB has also said it will hold interest rates at current levels until at least the end of the year. A sharp drop in industrial production in January, in the largest Eurozone economy, Germany, illustrates just how widespread the Eurozone economic malaise is.
The UK’s tortuous exit from EU membership is approaching its grand finale and in an uncharacteristic win, British PM, Theresa May was able to gather the required support to table a third vote on her Brexit deal, which if successful, would allow her to negotiate a three-month extension to the 29th March deadline. Whatever the outcome, Brexit has pitched the world’s fifth- largest economy into the unknown, and many fear it may divide the West as it grapples with growing assertiveness from Russia and China and the unconventional presidency of Donald Trump. Hopefully though, the turmoil will be short-lived and in the longer-term, an arm’s length relationship with its neighbours might allow the UK to thrive. The Chancellor of the Exchequer has pledged to spend £26.6bn to boost the economy provided a deal is agreed upon.
Here at home, mining, manufacturing and business confidence data for quarter one came under the spotlight last week. The broad-based weakening in sentiment, as indicated by the RMB/BER Business Confidence Index, which declined to 28, is deeply worrying. This is the lowest level since the second quarter of 2017 and reflects that over 70% of respondents remain unsatisfied with prevailing business conditions. Sentiment deteriorated in four of the five sectors covered by the survey. Building confidence dropped to its lowest level in eight years, retail confidence, after rallying to 33 in the final quarter of 2018, dropped below 30 again, manufacturing confidence slumped and wholesale confidence declined, although relatively modestly. The only sector which recorded an improvement, albeit slight, was new vehicle trade, but motor confidence still remains low, at 26. The weakness in domestic demand, coupled with rising input costs, is placing severe pressure on profit margins. Coupled with this, are disruptive interruptions to power supply, prolonged labour strikes and slowing growth in SA’s key trading partners. It does not make for a pretty picture.
No surprise then that both manufacturing and mining data for January failed to inspire. Mining output contracted by 3.3% year-on-year, driven lower by declines in the production of iron ore, gold, diamonds and coal. On a monthly basis, only two manufacturing groups recorded positive growth, namely wood and wood products, paper, publishing and printing and radio, television and communication apparatus. The results are not surprising given the number of headwinds SA is currently facing, and taken together, the data points to a fairly fragile start to first quarter economic activity. Persistent load shedding could shave about 0.4% off expected GDP growth this year.
By Bridget Kelly, Santam
Disclaimer:
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