GDP growth below expectations and Standard Bank is likely to miss it’s already previously downwards revised earnings target. We can’t forecast. Our biases, overconfidence, wild anchoring on anything out there, herding instincts so as not to be wrong and obvious about and general inability to understand how little we know about the future are clear.
So if we can’t forecast, and so many of our decisions depend on knowing the future, who are we kididng?
Our economy barely grew in the first quarter of 2008. 2.1% real seasonally adjusted growth is shockingly low given the previous quarter’s 5.3% growth. One needs to stretch back to 2001 to find a lower point of economic growth.
A large part of the problem is the 22% decrease in the economic contribution from mining. Yes, the power shortages have had a major impact on the mining sector. The worst appears to be over (holding thumbs but not holding breath) for our electricity shortages, but we still face several years of capped growth due to power constraints. Not ideal given the high current commodity prices and the extent to which our economy should be benefitting from this party while it lasts.
Inflation is heading upwards. Food and fuel prices are a significant portion of this, but there are broader inflationary forces at play too. If I recall correctly, CPIX excluding food and fuel is still around 5.3% at the most recent measurement. Mr Mboweni of our reserve bank also considers extension in the money supply. The growth in some areas is still too high. Surprisingly so given overall consumer and busines confidence dips recently.
On the other side, banks and credit retailers are seeing their bad debts and impairment provisions increasing by up to 50% in some cases. The worst is not over yet. I feel particularly for Mr Price who were a late entrant into the credit retailing business – I don’t have any information on how their credit book has fared, but is a pity that they didn’t benefit much from the credit boom while they were still operating on a cash only basis. Now they will be hit by the downside.
So inflation is up, bad debts are up, confidence is down and the economy is slowing – not surprising a 2008 evaluation of our population growth rate as reported in the CIA’s famous and fascinating World Factbook is -0.5%. That’s right – our net population is shrinking. The influx of Zimbabweans may not be fully reflected in those figures yet, but recent disgusting xenophobic violence may slow that influx too. Hopefully Zim will get themselves right in time to accept their family and friends back.
What is interesting about the declining population is that one could argue for an increase in the real GDP figure quote by 0.5% for understanding the effect on per capital GDP and overall living standards. If we have 0.5% fewer people to work, GDP should decrease by 0.5% (ceteris aribus). If we have 0.5% fewer people to feed, clothe, educate and cure of illness, then we need 0.5% less production to provide the same level of benefits. Many developing economies still have quite sharply increasing populations, which both necessitates and helps to create strong real GDP growth.
Per Capital GDP is potentially a better measure of how an economy is performing in both absolute terms (relative to the past, but not compared to other countries) and in relative terms (relative to other countries in absolute terms and relative to other countries performance over time).
At the very least both figures should be considered together if we really are to understand the drivers of living standards and employment.
0.5% is cold comfort given the sharp drop-off in economic activity in the first quarter.
2.1% growth for the first quarter of 2008 is part of the distant past. What we should be concerned about is the future. Or, in the case of delayed GDP figures, the immediate past. We are rapidly aproach to the end of the second quarter, and few would believe that the economy has fared better overall. An increase off the exceptionally low mining production could create a technical bump in GDP in the second quarter, but nothing to show any real improvement in the economy.
Let Trevor Manuel scorn anyone who think a recession is possible. Those of us who see it like it is will prepare for the storm while hoping it passes us by.
I’ve just finished watching the successful landing of NASA and JPL’s Phoenix lander on Mars. Previous success rate for landing on Mars was less than 50%. Not great odds by any stretch.
Interesting that not only is the Phoenix lander made extensively out of the technology of the failed previous attempt (Mars Polar Lander) but the result of several review boards, and the Phoenix project team’s own review of the failed Polar Lander’s story revealed many flaws that could be corrected. Most of us don’t operate in such a failure-prone, bet it all on black-or-red environment, but it is telling how errors get through all our rigourous testing.
Congratulations to the Phoenix team.
The strange turn of events that saw load shedding suspended seemingly within days of dire warnings around consumption may be coming to an end.
Eskom is warning that load shedding may need to resume. I guess it was too soon to pack away the inverters, generator, candles and perpetual motion machines.
Credit and economic risk collide when it comes to debt issued by Eskom. The damage is exacerbated by serious operational and medium-term management issues. Ensuring reliable supplies of raw materials should be a top priortity, but hasn’t been.
Moody’s is considering a multi-notch downgrade of Eskom’s foreign and local currency issues. Eskom’s debt is not guaranteed explicitly by the South African government. Still, it would be an unusual scenario where the government was prepared to let Eskom “go to the wall” due to the knock-on effects on our currency, capital flows and ability to raise new debt at competitive rates.
In related news, Moody’s is blaming a computer error the the AAA rating of some of the more complex securitisations they rated. This has raised the interest of programmers and finance people alike. It would seem convenient to blame a programmer (with four legs, horns and a little beard, perhaps). However, a rating agency takes responsibility for the entire process of rating an issue. Subjective “sense checks” are an important part of the final decision.
S&P rated most these instruments consistently with Moody’s. I suppose it is possible they made the same coding error.