As SA tries to engineer an economic revival, improving the country’s growth rate is becoming increasingly critical, and hinges on revitalising key components of the economy. We compiled a list of 12 key indicators in January 2018 that we are paying close attention to, scoring them on a monthly basis to assess if SA is making meaningful progress towards an economic turnaround.

The 12 key indicators focus on a wide range of variables including political stability, policy clarity, business confidence, employment, capital expenditure, housing activity and consumer income.

March 2019 analysis

Taking into account the increased electricity constraints, downward revisions to SA GDP growth in 2019, the lack of progress in key policy areas and further weakness in business confidence during Q1 2019, the average score of the twelve indicators has weakened at end March 2019 to 46% (4.6 out of 10).

This is down from 50% at the end of February, 48% in early February, but up from 45% at the end of December 2018.

The focus will now shift to the outcome of the National Election on 8 May 2019, and President Ramaphosa’s ability to implement key policy initiatives after the election.

How we score:

Every month, each indicator is scored on a scale of 1 to 10, with 10 indicating an extremely high level of vibrancy and 1 suggesting extreme underperformance. The scores are then averaged across all 12 variables to derive the overall progress level (reflected as a percentage), which we will analyse and share with you here.

Leading economic indicator

Customer income
Fixed investment activity
Purchasing Manager's Index (PMI)
Employment
Housing activity
Confidence (business and consumer)
Tourism
Institutional strength/ SOE reform
Interest rate spread

Policy certainty
Political stability

None

 

Are we on the right track?

Closing the gap between South Africa’s current growth rate of around 1% and a modest target of 3% on a sustained basis will require significantly more effort than is currently evident, including the co-ordination of policy efforts across key government departments.

Looking back at the first quarter of 2019, President Ramaphosa delivered an optimistic assessment on the outlook for the South African economy in his State of the Nation address on 7 February 2019, while Minister Mboweni presented a constrained National Budget on 20 February 2019 under difficult economic conditions.

One of the most encouraging aspects of the President’s speech as well as the National Budget is a clear intention to restructure Eskom. There appears to be an acceptance that the survival of Eskom, and the provision of a reliable energy source for the development of the country, will require additional private sector involvement.

Unfortunately, instead of making progress on the announced restructuring, Eskom was forced to introduce further bouts of electricity outages, which has substantially undermined consumer and business confidence.

Consequently, many economists, including ourselves, have revised down their 2019 GDP growth forecast. (STANLIB has revised the 2019 GDP growth forecast down from 1.5% to 1.0%, while the Reserve Bank revised its forecast lower from 1.7% to 1.3%).

Besides the difficulties associated with electricity outages, SA household disposable income is likely to remain under pressure in 2019. This reflects a combination of factors including slowing wage growth, dwindling bonus payments, slightly higher interest rates, an increase in indirect taxes (excise duties and the fuel levy) in the National Budget, large increases in the cost of water, electricity, and fuel as well as a weakening labour market.

Under these circumstances it is very tempting, and in many instances unavoidable, to take on additional debt. A rapid and sustained increase in unsecured credit is likely to prove unsustainable under current circumstances and could simply lead to increased financial distress.

To track our progress since the beginning of last year, visit our Knowledge Centre on https://knowledgecentre.stanlib.com/measuring-south-africas-economic-turnaround-july-2018/