Economic forecast for South Africa,
including a focus on KwaZulu-Natal
BER presentation to Trade & Industry KZN (TIKZN): Export Week,
27 – 29 October 2015
Pieter Laubscher
29 October 2015
Presentation outline
 Global economic outlook
 Regional outlook
 SA macro
 SA economy fragile & weak
 Macro forecast, 2015-17
 Focus: KwaZulu-Natal





Business confidence
Retail/ manufacturing/ construction
Competitive edge in industry
Revealed comparative trade advantage
Export destinations and outlook
Global economic outlook
Global economic growth: ‘secular stagnation’ =
‘new normal’ = Japan after 1990 ?
Japan’s GDP at current prices
• Has the long-term growth
trend of the world
economy turned sideways?
Trend growth impacted by
2 forces:
 Demographics of ageing
populations in advanced
economies (Europe;
Japan & China)
 Maturing productivity
growth stimulus from
computer revolution.
World economy continues to expand,
with some loss of momentum in 2015 …
70
Sept
2015
65
Expansion
60
index
55
50
45
Major economic
stimulus (QE/
LTRO, etc.)
Contraction
40
35
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Global PMI
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Developed economies converge, leading
global growth. This is the positive news.
65
Sept
2015
60
Expansion
55
index
50
45
40
Contraction
35
30
Jan-07
Jan-08
Jan-09
Jan-10
USA ISM
Jan-11
Jan-12
Euro area PMI
Jan-13
Jan-14
Jan-15
Developed and developing country growth
tend to diverge, with China slowing …
Sept
2015
65
60
Expansion
55
index
50
45
40
Contraction
35
30
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
USA ISM
Jan-12
China PMI
Jan-13
Jan-14
Jan-15
SA export commodity prices under pressure,
even in Rand terms …
Gold
Platinum
Richards Bay thermal coal
Brent crude
Iron ore
The commodity (super?) cycle peaked in 2011
•
Metal prices (US$ index)
48%
decline
from
Mar
2011
Bearish commodity
cycle:
 New supply coming
on stream following
commodity boom &
due to long lead times
 Weak demand – China
re-balancing & lower
trend growth in
advanced economies
 Counter: Producer
response  flat
outlook
China’s commodity demand is changing
•
Weak demand for heavy
commodities:
 Demand for CAPEX
commodities decline,
2015YTD (e.g. Cement; Iron
ore; steel; Coal; Copper, etc.)
 Demand for OPEX
commodities (e.g. oil;
aluminium; coffee; sugar,
etc.) grows
 Prices 2020 (BER forecast):
 Oil: $68/b
 Iron ore: $55/tonne
 Coal: $56.4/tonne
 Platinum: $1265/oz
 Gold: $1062/oz
Global outlook in summary
Forecast
Source: IMF World Economic Outlook, October 2015
Key global themes:
 2015-17 World GDP
growth momentum
similar compared to 201214
 Advanced economies
slightly stronger; emerging
economies, slightly
weaker
 Inflation & interest rates
likely to surprise on the
low side
 US dollar strength persists
SA macro
RMB/BER BCI declines by 13 points during
first three quarters of 2015 …
% gross
100
… to 38 in 15Q3 from 51 in 14Q4
80
•
Manufacturing 34 (42)
•
Building contractors 45 (66)
40
•
New Vehicles 27 (30)
20
•
Retail 34 (55)
•
Wholesale 50 (60)
60
0
86 88 90 92 94 96 98 00 02 04 06 08 10 12 14
Worrying gap between global and domestic business
sentiment …
index points
100
140
90
120
80
100
70
60
80
50
60
40
30
40
20
20
10
0
1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1 2008Q1 2010Q1 2012Q1 2014Q2
RMB/BER BCI
Source: Ifo Institute / BER
Ifo business climate index
0
Economic recovery characterised by poor
business confidence trend & weak investment …
Business confidence
Fixed investment
Viscious circle: low growth, poor production
capacity utilisation, weak fixed investment …
Manufacturing survey: Constraints on ability to invest
over the next 12 months – political
Consumer-led recovery runs out of steam …
• Real after-tax income
growth tapers off to below
2% yoy in 2014
• Likewise the growth in
household consumption
expenditure (1.5% in
2015)
• Poor job growth
• Low consumer confidence
• Higher inflation profile
• Tighter monetary & fiscal
policy
Interest rates: Prime overdraft rate projected to
rise by another 75bps through 2016
Sub-titel
Prime overdraft rate
25.0
Motivation for rate hikes:
• Upward inflation pressures
• Weakening rand exchange rate
22.5
• Above-inflation wage settlements
• Food price increases linked to
20.0
drought
17.5
• Electricity price increases
• SARB reaction to pending USA interest rate
15.0
increases in the context of wide current
account deficit – currency may be the
trigger
12.5
• Expect mild interest rate hike cycle – only
10.0
75 bps up over the short term (end-2016)
7.5
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Source: SARB; BER forecast
SA macro outlook in a nutshell
2013
2014
2015F
2016F
2017F
Consumer spending
2.9
1.4
1.5
1.4
2.2
Govt consumption
3.3
1.9
0.7
0.8
0.8
Fixed investment
7.6
-0.4
0.9
-0.2
1.9
Gross domestic
expenditure (GDE)
1.4
0.6
0.3
1.5
2.1
Exports
4.6
2.6
9.6
3.1
3.9
Imports
1.8
-0.5
5.8
3.3
3.9
GDP
2.2
1.5
1.4
1.4
2.2
CPI (ave)
5.7
6.1
4.7
6.2
5.8
PPI (ave)
6.0
7.4
3.7
5.8
5.4
8.50
9.25
6.00
6.75
6.75
10.16
11.21
13.85
14.35
13.20
Prime rate (end of period)
R/$ (Q4 ave)
Focus: KwaZulu-Natal
Recap: the global industrial production
cycle …
65
Sept
2015
Expansion
60
55
index
50
45
Contraction
40
35
30
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Global PMI
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
… compared with SA manufacturing
65
Sept
2015
Expansion
60
55
index
50
45
Contraction
40
35
30
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Global PMI
Jan-09
Jan-10
Kagiso SA PMI
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
… and KwaZulu-Natal manufacturing
65
60.0
Expansion
60
40.0
20.0
55
0.0
index
50
-20.0
45
-40.0
Contraction
40
-60.0
Sept
2015
35
30
Jan-02
-80.0
-100.0
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Global PMI
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Eastern Cape mnf survey (BER)
Jan-13
Jan-14
Jan-15
Business confidence: KwaZulu-Natal BCI
falls to below national in 15Q3 …
90
80
70
BER Business confidence index:
2015Q3 (15Q2):
* KwaZulu-Natal 27 (59)
* Western Cape
57 (59)
* Eastern Cape
47 (29)
* Gauteng
30 (30)
60
50
40
30
20
10
2015Q3
0
Mar-95
Mar-97
Mar-99
Mar-01
Mar-03
Mar-05
RMB/BER BCI
Mar-07
Mar-09
KwaZulu-Natal
Mar-11
Mar-13
Mar-15
KwaZulu-Natal business conditions, 2015Q3
(BER survey)
Manufacturing production …
Building activity …
Manufacturing export sales …
Retailing conditions …
KwaZulu-Natal: Competitive edge in industry
•
Agriculture, forestry, fishing – including food & beverage processing
•
Manufacturing: clothing & textiles; wood & paper products; furniture; metals &
products, automotive; petro-chemicals
•
Commercial services: transport; trade & accommodation (tourism); communication
•
Value chains: food; cloth&tex; timber, wood & furniture; metals; auto; petrochem;
transport & communication; retail & tourism
Location ratio: 2013
Agriculture, forestry & fishing
1.79
Manufacturing
1.30
Commercial services
1.01
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
KwaZulu-Natal: Revealed comparative trade
advantage
82% of goods
exports
•
Iron & steel products: steel & aluminium (34%)
•
Wood, pulp, paper & products (7%)
•
Automotive (other than rail, vessels) (17%)
•
Mineral products: ores, slag & ash; salt, lime, plaster & cement (14%)
•
Chemicals: inorganic chemicals; explosives; fertilizers; tanning & dyeing extracts; soaps & lubricants; etc. (9%)
•
Other products: sugar & cereals; yarns & carpets/ floor covering (2%)
RCTA ratio: 2012
Products iron & steel (HS72-HS83)
4.93
Wood pulp & paper (HS47-HS49)
2.96
Wood products (HS44-HS46)
2.70
Vehicles aircraft & vessels (HS86-HS89)
1.64
Mineral products (HS25-HS27)
1.22
Chemicals (HS28-HS38)
1.11
0.00
1.00
2.00
3.00
4.00
5.00
6.00
KwaZulu-Natal goods export destinations,
2013
KwaZulu-Natal export growth (US$ values):
2005-13
• The growth of
exports to
Africa has
mainly been to
SADC countries
• The growth of
exports to
Europe has
mainly been to
non-EU
countries
KwaZulu-Natal exports: shift between 2005-13
Regions
SADC
Other SSA
MENA
Japan
Nics
Asean
Other Asia
North America
Latin America
Caribbean
EU
Rest of Europe
CIS
Oceania
Not allocated
World
Brics
2005
9.9
5.5
4.1
12.0
8.2
6.0
5.1
15.6
2.1
0.1
25.4
0.8
0.1
3.8
1.2
100.0
5.7
2013
15.4
6.5
5.9
4.9
3.9
7.0
10.2
10.6
4.1
0.1
23.2
4.0
1.2
2.0
0.9
100.0
13.3
% pts shift
5.5
1.0
1.8
-7.1
-4.3
1.1
5.1
-5.0
2.0
0.0
-2.3
3.2
1.1
-1.8
-0.3
7.6
• Share of exports to Africa
increases from 19.5% to
27.8%; mainly to SADC
countries
• Share of exports to BRIC
countries increases from
5.7% to 13.3%
• The EU remains an
important trading partner,
albeit that exports to other
European countries grow
stronger (e.g. CIS)
• Share of exports to Japan,
NICs, North America &
Oceania decline sharply
KwaZulu-Natal goods export destinations,
2005-13: contribution to growth
Explains 80% of
export growth,
2005-13
Source: Quantec Research; own calculations
KZN goods exports to the EU (% share; 2013)
KZN goods exports to SADC (% share; 2013)
KZN export outlook: key points
• A focus on exports should be a key economic growth strategy
in view of the weak domestic market, the strong US dollar
and the more competitive level of the rand exchange rate.
• Exports to EU should fare better over the short-to medium
term; combined with new market share in non-EU European
countries (e.g. steel & aluminium exports)
• Growth of exports to Africa can continue, albeit that the
commodity price impact have to be discounted  KZN agriprocessing exports somewhat at risk.
• The share of KZN exports to ‘non-traditional markets’ have
increased from 31% in 2005 to 39% in 2013. This focus
should continue, but be complemented by strategies to
maintain trade relations with traditional markets.
Economic information that works for you
Pieter Laubscher
+27 (0)21 887 2810
[email protected]
www.ber.ac.za
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