The wheel turns
Economic recovery taking hold
"The economy is a massive machine with a number of smaller cogs. Once the smaller wheels are set in motion, the machine starts operating again"
The economy has not yet fully recovered, but the signs point to an upward trend. Unfortunately there are still some industries and geographic pockets that are struggling but analysts say that the worst is seemingly over.
In a good mood
Christo Botes, an Executive Director with private SME investment firm Business Partners, says he senses an optimistic mood in the SME sector."There is a feel-good factor in the market and the feedback we are receiving is mostly positive... If you look at different industries in isolation, there are good signs everywhere," he says.
Jan Steenkamp, the Executive Head of Sanlam Cobalt, echoes this. He says that the confidence levels of both their clients and intermediaries are on the increase.
In addition, Steenkamp says that insurance sales are up and that this reflects the upward movement in the economy.
"Insurance often reflects the money available to invest and the associated risks, so it seems as if money is being spent again... If people feel more confident they will start pursuing opportunities."
Botes explains that the economy is a massive machine with a number of smaller cogs. Once the smaller wheels are set in motion, the machine starts operating again.
"For example, the construction industry is experiencing deflation and prices are down. This means that turnovers are down.
"But, this will also lead to an increase in the number of building and construction projects because it is more affordable. Prices will go up again, as will wages and consumer spending will increase."
Ups and downs
The new RMB/BER Business Confidence index slipped a little in the second quarter, but its authors are not that worried."While the drop in confidence is disappointing, it is not entirely unexpected as it follows the largest improvement in sentiment between consecutive quarters in 15 years. The second quarter decline can therefore be partly attributed to confidence merely returning to more realistic levels," a statement reads.
Retail was one of the sectors most affected and declines "were particularly notable in the case of the durable (furniture, appliances and electronic goods) and semi-durable goods sectors (clothing and footwear)".
The vehicle sales sector also saw a decrease in confidence, but this should bounce back following an increase in new vehicle sales according to the latest statistics from the National Association of Automobile Manufacturers of South Africa.
"The second quarter brought no relief to the two laggards, the building and manufacturing sectors," the RMB/BER statement reads.
"Confidence in the building sector fell further from an already low 26 to 20 index points, while the business mood in manufacturing largely remained unchanged at a level of 27 (compared to 28 previously). Both building contractors and manufacturers rated insufficient domestic demand as the biggest constraint they face. Weaker export demand also played a role in the case of certain manufacturers."
Where we stand
These sentiments do not come as a big surprise to Economists.co.za's Mike Schüssler - the author of the BoE Private Clients Provincial Barometers."It is logical that construction will be a lagging indicator and that this sector will feel the effects of the recession for longer," he says.
"In the vehicle sector, growth has happened although it has levelled off a little. For some reason, cars - of all the durable goods - picked up first. Furniture sales, for example, remains in the doldrums.
"We think part of the reason is the lack of public transport, the car culture in South Africa, the World Cup and rental firms stocking up, as well as the new taxes that will be introduced later in the year.
"In the retail sector, wholesalers are still struggling while smaller retailers are doing better," Schüssler says.
The good news however is that all four provincial barometers have shown an increase during April and Gauteng is up 5.4%, the Eastern Cape 4.5%, the Western Cape 3.9% and the Free State 3.1%.
Gauteng and the Eastern Cape show bigger increases as these two provinces were more adversely affected by the recession.
"We had a very good start to the year. The Eastern Cape's recovery really surprised me. Gauteng has also bounced back well," Schüssler says.
"But, it seems as if the growth is levelling off a little and is no longer following that ‘V' shape."
Sector outlook
"We have had three quarters of positive growth and while there are a few sectors that have not picked up completely, it is looking better. Most of this growth is reasonably sustainable."What people need to remember is that the recovery will not carry on at the same pace. So, we can expect slower growth but it is still growth... People should not be despondent," he adds.
Construction in the Western Cape and Gauteng is still struggling and Schüssler says this is largely due to an oversupply in residential properties.
In the Eastern Cape and the Free State commercial projects are driving an upward trend.
"The worst in the residential property sales sector is over," he says, adding that this sector also helped the Free State perform better.
In some provinces, the agricultural, mining and wholesale sectors have shown growth but Schüssler warns that the April barometers do not reflect the recent Transet strike. Nevertheless, the data is encouraging for the most part.
"The financial sector still seems down year on year but it appears to be turning as there was quarter on quarter growth... Government has also been spending and this is what one should expect."
What to do
Going forward, Schüssler says a growth rate of between 2.5% and 3% is possible in the coming six months. He adds that this will not create any significant jobs but that it will place South Africa somewhere in the middle when compared internationally."Our recovery phase was swift and we should be grateful for this. I feel that we have reached a bit if a plateau that it will form the basis of next year's growth.
"For me, as a businessman, this all means that things are looking better but I still have to work hard to keep my contracts and to keep costs down. If my business is going well, I can think about expanding. But if you do not have the traction needed, think twice.
"If you can buy a competitor's business at a bargain, it might be a good time to look at this investment going forward... put your feelers out so long but don't invest 100%."