Posts Tagged ‘BRICS News’

South Africa economic growth exceeds forecasts

Actual quarterly growth rate was 2.2% versus consensus forecast of 1.6 per cent, while annual growth was 1.1% versus consensus forecast of 0.5 per cent

The National Treasury building in Pretoria [PREUSS]

The Gross Domestic Product (GDP) data released by Statistics South Africa (Stats SA) exceeded the Reuters consensus forecast of a 1.6 per cent seasonally adjusted annualized (saa) increase in the third quarter on the second quarter by almost a half, as the actual rise was 2.2 per cent.

This brought growth in the first nine months to 0.8 per cent year-on-year (y/y), which also exceeds the full year forecast of the South African Reserve Bank (0.6 per cent) and Treasury (0.7 per cent).

In the third quarter, y/y growth was 1.1 per cent, which was more than double the consensus forecast of 0.5 per cent y/y. A y/y increase of similar magnitude or higher to the third quarter is expected in the fourth quarter.

Citadel Chief Economist Maarten Ackerman was optimistic about future growth prospects.

“With a positive growth figure of 2.2 per cent for the third quarter of 2018, the technical recession is over. We can now switch on the lights and, hopefully keep them turned on, given the issues we’re experiencing with electricity,” he wrote in his reaction piece.

Ackerman believes that if there is stronger sustained growth, it will improve South Africa’s fiscal situation.

This would be positive for the local bond market and implies that interest rate hikes will be moderate.

“On a more positive note, it was encouraging to see that household expenditure had risen by 1.6 per cent quarter-on-quarter. This points to the fact that South African consumers are not yet down and out, despite the financial challenges of higher fuel costs, increased VAT and a high unemployment rate,” he added.

He also said that business and consumer confidence is expected to rise as we approach the holiday season especially on the back of a 1.84 rand decrease in petrol prices in December.

“This … in turn should further boost the final quarter’s GDP figures. The strong growth seen in the third quarter is a step in the right direction, and with a continued focus on policy reform and implementation, we should hopefully see government’s labours slowly start to bear fruit in the near future,” he concluded.

Market matters

What matters for the bond market is nominal growth and that accelerated to 7.8 per cent y/y in the third quarter from 7.0 per cent y/y in the second quarter and 6.2 per cent y/y in the first quarter.

As tax collections are a function of nominal GDP, the higher growth means that the bond market should take comfort that tax revenue will exceed the Treasury forecast.

The Treasury growth projection for the calendar year 2018 is only 6.4 per cent, which is 0.5 percentage points below the 6.9 per cent y/y growth actually achieved in the first half of the year.

The economic stimulus plan announced in September and the above-inflation wage awards to civil servants should ensure that nominal GDP growth in the second half of 2018 is higher than the first half and the third quarter GDP data seems to give credence to this view.

In the first six months of the current fiscal year, revenue has increased by 10.7 per cent y/y, while expenditure has only grown by 6.0 per cent reducing the fiscal deficit by 11.7%. For the full fiscal year, Treasury forecast that revenue growth would only be 8.5 per cent, while the expenditure increase would be 7.7 per cent.

Hang on …

Professor Raymond Parsons from the North West University Business School warned that Eskom’s woes could undermine the positive growth momentum.

“Extended disruption of electricity supply will exact its cost in terms of production losses during this quarter and even beyond,” Parsons says.

And this is all happening at a time when South Africa is committed to boosting investor confidence. As a result a lack of security in power supply could negatively impact the positive investor sentiment and capital formation needed to support a higher growth trajectory.

“The previous ‘war room’ created a few years ago between government, Eskom and business to deal with load-shedding then may need to be reactivated to deal with the present power emergency,” he said.

Sanlam Investment Management economist Arthur Kamp noted the pressure that the household sector had been under, but expected the recent drop in the oil price to boost consumption in the fourth quarter.

He makes particular note of the slowdown in worker compensation, from 8.1 per cent y/y in the fourth quarter to only 5.4 per cent y/y in the third quarter.

In contrast, total gross operating surplus, which is a proxy for business profits, increased by 7.9 per cent y/y in the third quarter, significantly up from the recent 4.7 per cent y/y trough recorded in the first quarter.

“Given the marked slowdown in compensation growth, the soft jobs market and an increased tax burden, it is no surprise that household spending growth is modest only. At the same time, an inadequate return on investment, in a weak productivity environment, has constrained business expenditure on fixed investment,” Kamp says.

Looking ahead, the recent sharp fall in oil prices, which should support our terms of trade and purchasing power, amidst increased agricultural production and continued global growth (although perhaps moderating) is expected to help domestic real GDP growth register some improvement into 2019,” he concluded.

Helmo Preuss in Pretoria, South Africa

Trump meets Xi: No extra tariffs as talks continue

US President Donald Trump said the G20 Summit was a success for America’s interests [PPIO]

World markets on Sunday may have sighed some relief after news emerged from the G20 Summit in Buenos Aires that China and the US had agreed to put the breaks on any new trade tariffs for the next three months.

The US agreed not to raise current tariffs on some $200 billion in Chinese goods from 10 to 25 per cent on January 1, 2019.

In return, the Chinese promised to reduce the trade deficit with the US by agreeing to purchase American-made industrial, energy and agricultural products.

“Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10 per cent tariffs will be raised to 25 per cent,” a White House statement said early Sunday.

It’s possibly the best possible outcome of the first meeting – a working dinner – between Chinese President Xi Jinping and his US counterpart Donald Trump since a trade war erupted between the two economic powerhouses last spring.

While no one really expected either president to fall on their swords and fight the trade war to the bitter end (likely reversing any global economic boost of the past few years), the rhetoric from the White House had lately been full of bluster.

Although the two leaders had talked on the phone weeks leading up to the G20 Summit, Trump had said he was willing to reach an agreement but didn’t really think there was a need to.

The Chinese have accused the US of shooting itself in the foot, creating a lose-lose situation for all.

“By putting domestic laws above international laws, the United States has broken its commitment to all members of the World Trade Organization and has disregarded and damaged multilateral rules of the World Trade Organization,” the Chinese Ministry of Commerce has repeatedly warned.

Win-win relationship?

But the Chinese were more willing to carve out a deal. Chinese Foreign Minister Wang Yi, who had been critical of the US position on trade with his country, hailed the success off the Trump-Xi meeting and said the two countries were now in “win-win cooperation”

On Sunday, the official news agency Xinhua praised the outcome of the talks, saying both sides approached the trade impasse with sincerity.

“As long as the two countries join efforts to remove disturbances, build up mutual trust and step toward each other, they will be able to have both the wisdom and time enough to manage their differences properly,” a Xinhua commentary on Sunday said.

Trump did not immediately address his working dinner with Xi but Tweeted that he had great success in dealing with various countries at the G20.

Earlier, he said he had a great working relationship with Xi which would help in reaching an agreement.

So how did we get here?

Trump has long claimed that China has taken advantage of the US.

On the campaign trail to become president, he accused China of unfair measures limiting US commerce in China.

Trump has also long accused China of “discriminatory” technology transfers from the US, as well as intellectual property violations.

The Office of the United States Trade Representative recently upgraded its Section 301 investigation to support Trump’s claims on China’s technology transfer, intellectual property and innovation policies.

It may as well have been a showdown between multilateralism and protectionist “America First” policies which have already rattled the global economy.

Since late spring, the US slapped tariffs on $250 billion in Chinese goods; the Chinese responded with tariffs on $110 billion in American goods targeting economically important industries such as agriculture, with special emphasis on soybeans (half of all US soybean production is exported to China), crude oil and auto parts.

The Chinese list reached nearly 600 other items, including pork, aircraft parts, meat and fruit processors, and hundreds of other industrial products.

The Chinese said that the US had started the biggest trade war in economic history.

The International Monetary Fund agrees, saying that the trade war could escalate to a scenario where global growth sees a 0.5 per cent drop over the next year.

There was also domestic pressure on the Trump administration to work out some kind of deal.

US-based tech giants such as Apple and Microsoft among half a dozen others had been hoping that the two leaders could work out some deal to de-escalate from their informal trade war because many of their products are produced in part, or whole, in China.

An escalation of trade tariffs would have forced them to exit China manufacturing for perhaps Malaysia, Vietnam or Indonesia – a lose-lose situation for both China and the US.

By Firas Al-Atraqchi with inputs from Agencies

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