The SA economy: The view from the rear view mirror is not encouraging. Can we look down the road more happily?
The pace of the SA economy appears to be slowing down rather than picking up momentum – judged by the very latest data releases for October 2016. New vehicle sales and cash in circulation indicate that a trough in the business cycle, that is when economic conditions have begun to improve rather than deteriorate, has not been registered though may possibly be in sight.
New vehicle sales are nevertheless somewhat more encouraging than the latest money supply data. While new vehicle sales are well down on a year ago, sales volumes in October represented a modest improvement over sales made in August and September 2016, especially when viewed in seasonally adjusted terms, as we show below. When current vehicle sales are extrapolated, using a time series forecasting process, a cyclical trough, is indicated for early 2017. As noticed in figure 2 negative, year on year growth rates, may also have reached a low point.
By contrast the demand for and supply of cash still indicates weaker propensities of households to spend more. The demand for cash, as may be seen, is not keeping pace with inflation. Though, as may also be seen, the forecast is that the real demand for cash is about to turn marginally positive, indicating more rather than less spending to come.
When these two series are combined to form our Hard Number Index (HNI), its direction has turned lower after moving sideways for much of the year, indicating declining levels of economic activity. Extrapolating the HNI however also suggests an improvement in activity levels in 2017. As may be seen, the HNI based on two very up to date hard numbers – rather than based upon sample surveys – is a good predictor of the Business Cycle that is calculated by the Reserve Bank, for which the latest data point is for July 2017 (of somewhat distant memory given all that has happened to society and the economy).
The broader measures of money supply and of bank credit and retail sales volumes, updated to September 2016, indicate a similarly weak backdrop for the SA economy, as we show below. The growth in M3 (to September month end) has become negative in real terms while bank credit supplied to the private sector is somewhat more robust. Perhaps bank credit is being used to a degree, to fund offshore rather than domestic growth. As we also show in retail sales volumes shows a declining growth trend that is forecast to continue in 2017.
The hope for a cyclical recovery in 2017 must rest upon the inflation trends. A Reserve Bank forecast of lower inflation would allow for lower interest rates, which are essential to the purpose of a cyclical recovery. As may be seen in figure 6, the time series forecast of the CPI, using the latest data, is for less inflation to come. Recent data releases for the CPI (the latest being for September), do indicate a much shallower trajectory for the CPI. Between July and September 2016, the CPI was largely unchanged as we show below. A degree of exchange rate strength has helped restrain inflation. A normal harvest in 2017 would do more of the same. South Africans, under severe economic pressure, would be justified in praying for more rain combined with strength in emerging market currencies, including the rand.
