Western Cape Business News

Send  Share  RSS  Twitter  03 Jun 2009

ECONOMY: Recession Biting, But Pressure Abates


Recent Western Cape Business News

THE private sector economy remains firmly in recession, although there are signs that the pressure on consumers is starting to abate.

This is apparent from the February findings of the unique provincial barometers developed by independent economist Mike Schüssler which measure real activity levels in the private-sector economy and are published monthly by BoE Private Clients.

Barometers for the Western Cape, Gauteng, Eastern Cape and the Free State comprise a set of provincial indices that measure activity levels in individual economic sectors. These include agriculture, mining, transport and communication, trade (which houses all retail, wholesale and leisure activity), manufacturing, electricity generated and construction.

The barometers also depend on two major provincial sub indices, the Economic Growth and Economic Stress Indices. The Growth Index measures the real growth in activity levels for the overall provincial economy, while the Economic Stress Index measures all the negative elements such as provincial inflation, interest rates, civil debt judgements and job creation.

In February the Gauteng Barometer declined by 15.8% compared to February 2008. Similar decreases for the Western Cape Barometer (-7.3%), the Eastern Cape Barometer (-14.8%) and the Free State Barometer (-3.8%) were measured. These declines follow on a significant downward trend in all provinces since the middle of last year.

Schüssler notes, however, that all the elements look better now than they did at the end of last year, and says that he expects them to improve further in the next few months.

After a few more difficult months things should improve. Consumers can begin to breathe more easily as the pressure of interest rates and inflation lessens,” says Schüssler.

This should boost the wallets of consumers and will boost their available disposable income. It will naturally increase consumer spending and stimulate a variety of sectors, especially the retail and manufacturing sectors.”

Looking at the outlook for the country as a whole, BoE Private Clients Chief Investment Officer Daryll Owen says companies will show no growth or very little positive growth this year as a result of the tough economic conditions globally and locally.

The big question is when a turnaround can be expected. According to Owen, while the outlook is still very uncertain, the best estimate is that the second half will be better than the first half.

The aggressive fiscal and monetary stimulus by governments and the lower oil price should act as catalysts for a turnaround. The primary objective of the policymakers is to unfreeze credit markets and to stimulate domestic demand. Consumer confidence will need to improve before we can expect to see a pickup in consumer demand.

The longer term implications of the current expansionary monetary policies could be higher inflation. In the short term however, deflation rather than inflation is the concern,” says Owen.

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