By Brian Kantor
There are at least two strong features of the SA economy, notably domestic unit vehicle sales and the supply of notes. Domestic vehicle sales in the 12 months to July are being sustained at 66 2000 units, close to the record sales of over 700 000 units in 2006-7 terms. The growth rate in vehicle sales has declined but remains positive at about 5%, helped by low financing costs and low rates of inflation of the prices of new vehicles.
The Reserve Bank note issue has grown by more than 12% over the past 12 months. Growth has held up strongly over the past three months to July, though the trend would appear to be in decline to about a 9% rate over 12 months.
The demand for new vehicle sales of all sizes comes largely from the formal sector of the economy – those with access to bank credit – while the growth in the note issue reflects less formal economic activity of those who prefer cash to credit or debit cards. Both sources of demand have been very welcome to an economy under pressure.
We combine both of these very up to date series to form our Hard Number Index (HNI) of the current state of the SA economy with the note issue, deflated by consumer prices. The results are shown below. The Hard Number Index has moved higher but appears to be peaking. Growth in economic activity, while still positive, is slowing down.
This latest indicator of the state of the SA economy, of sub-par growth subsiding, will not come as much of a surprise to economy watchers. Growth in domestic spending has probably held up better than many would have predicted and meant the economy could maintain some forward momentum, despite the weakness of exports and export prices. But the economy could do with all the further help it can get from stronger demands from world markets to boost local production and incomes.
Sustained output of minerals and metals, less disrupted by strikes and walkouts, would be a big plus for growth. Higher prices for commodities coupled with better export volumes and revenues would also help the rand. A stronger rand would mean less inflation to come and lead to lower interest rates that could help sustain domestic spending. The problems in mining have not only damaged output and employment in mining and manufacturing; they have kept up interest rates. The domestic economy has deserved the lower interest rates that an improved foreign trade account and better than expected labour relations could help deliver.