ECONOMY: Business Takes a Dive During May
Recent Western Cape Business News
The economy experienced one of the worst declines in business activity levels during the month of May, although there are signs that the country is close to the bottom of the current economic cycle.
This is evident from the May results of the BoE Private Clients’ provincial barometers. The barometers clearly show that activity levels in four major provincial economies decreased sharply in May with the broad financial services and manufacturing sectors, in particular, feeling the pain of the international economic downturn.
The provincial barometers are co-incident indices that measure the actual activity levels in the private sector economies of Gauteng, Western Cape, Eastern Cape and the Free State. The barometers are compiled from various provincial statistical series and indicate a single reference point regarding the health of each province's private-sector economy.
The provincial barometers were developed by Sake24 and economist Mike Schüssler.
The Gauteng Barometer for May shows that activity levels were 16% lower than in May last year. In the Free State activity levels were down by 8.4% and in the Western Cape by 7.8%. The Eastern Cape Barometer shows that activity levels plummeted by 18.2% year on year.
Schüssler says that although he had been anticipated that May would indicate a turning point, it is apparent from the barometers that this will take another month or two.
The individual sectors most affected by the economic downturn are manufacturing and the broad financial, property and business services sectors. For manufacturers, activity levels in Gauteng in May were 17% down on May last year. Similar sharp declines were evident in the Eastern Cape (-17.2%), Western Cape (-13.3%) and Free State (-10.4%).
Businesses in the financial sector had an even worse month, with sharp declines being recorded in each of the four provinces.
Daryll Owen, Chief Investment Officer at BoE Private Clients, says domestic growth prospects will depend to a large degree on how quickly global markets recover from the current recessionary conditions.
“While many people may have been hoping for a further rate cut to ease the interest burden, it appears that we are now getting close to the bottom of the interest rate cycle. We are forecasting a further two 50bp rate cuts by the end of the year which will reduce the prime lending rate to 10%,” he says.
Owen adds that in the short term all eyes will be focused on the rand, which currently appears overvalued, and on further evidence of global greens shoots.
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