The FNB/BER Business Confidence Index (BCI) serves as a valuable indicator of the general level of optimism in various sectors. These include manufacturers, building contractors, retailers, wholesalers and new vehicle dealers. The index varies between 0 and 100, where 0 indicates an extreme lack of confidence, 50 is a neutral reading and 100 means extreme confidence.
The Consumer Confidence Index (CCI) metric we refer to is reported by FNB/BER (Bureau for Economic Research). It combines the results of three questions posed to adults living in predominantly urban areas in South Africa. These questions are based around:
1. The expected performance of the economy,
2. The expected financial position of households
3. The rating of the appropriateness of the present time to buy durable goods, such as furniture, appliances and electronic equipment.
The CCI varies between -100 and +100, where -100 indicates an extreme lack of confidence and +100 extreme confidence. The BER has suggested that +2 represents a neutral level. Sourced Bureau for Economic Research
Arguably the most important catalyst for growth in the coming years, unemployment plays a vital role in the development and productivity of an economy and is directly related to GDP. While there are multiple variations of it’s “true” definition, the fact remains that South Africa’s unemployment remains extremely high. Youth unemployment, more alarmingly, is estimated at 50%.
Let’s look at the unemployment rate definition according to the Reserve Bank. Simply put:
Unemployment rate = Unemployed population/ Labour force
Unemployed population = Population who actively seek work and have been seeking for longer than 4 weeks.
Labour Force = Number of people AVAILABLE for work. (i.e not incarcerated, not under the age of 16 etc.)
Recently, positive contributions to national employment have come from the construction, trade, transport and utility industries. Unfortunately, these have been overshadowed by losses in the mining, household and manufacturing industries.
Foreign Direct Investment (FDI) is an extremely important metric for emerging market currencies.
Global market investors are currently faced with the dilemma of either investigating near-zero interest rate environments or venturing into emerging markets. The ease of doing business index, GDP growth, financial stability and inflation all play a key role in attracting foreign investment.
South Africa’s FDI has come under pressure in recent years as a result of political instability creating volatile markets. Low commodity prices and a risk-off sentiment also contribute to lower levels of FDI. South Africa’s FDI investment figures can be found below, as measured in US Dollars.
Government Debt to GDP represents the portion of National Debt as compared to revenues from production and services. A higher percentage occurs when debt grows at a faster pace than GDP. When looking at comparative EM markets, South Africa ranks better than Brazil (69.47%) but worse than Mexico (43.2%) and Turkey (28.30%)
The graphs below detail the respective historical performance:
The gross domestic product (GDP) is a broad measurement that represents the performance of a nation’s economic activity. It calculates the total value of all goods and services produced over a specific time period, generally reported both quarterly and annually.
From 1999 to 2006, South Africa’s GDP figure has shown steady growth in line with global economies. More recently, however, GDP growth has come under pressure due to low commodity prices, rising unemployment and political instability, which has left the global market sceptical of emerging market success. Traditionally, a rich resource-based economy, South Africa has had to adapt to new forms of revenue. In recent years, the manufacturing and service-based sectors have seen increasing contributions. These newer markets, along with the mining industry, will be watched closely in years to come, as the commodity cycle looks set to rise.
How to Interpret this data?
If GDP growth increases continuously, the Rand should strengthen in the short to medium term.
The balance of trade (BOT) measures the difference between a country’s imports and exports. A positive balance is interpreted as a healthy signal since it indicates that we export more than we import (earn more than we spend).
At times, the trade balance may be affected by factors outside of the control of the national Government. These include natural disasters, commodity cycles and global growth patterns. Historically, South Africa has experienced long cycles of positive (surplus) and negative (deficit) balances and more recently these figures have become less predictable and more volatile due to the above-mentioned factors.
The trade balance serves as a good indicator of ease of trade and economic strength, especially for resource-rich countries.
Interest rates affect almost every adult in today’s modern financial world. Whether you have a mortgage, fixed deposit or a credit card, the current repo rate has a direct impact on your day-to-day life. In savings terms, investors favour higher interest rates since central banks use them to attract international capital. On the flip side, borrowers feel the pinch when rates are raised because this results in higher debt repayments.
Internationally, interest rates play a major role in central bank policy decisions. The US has recently begun their latest rate hiking cycle, and the year ahead seems to be rife with speculation regarding how the cycle will unravel. Conversely, parts of Europe have been experimenting with the effects of negative rates for a few years and continue to wade into uncharted territory.
In South Africa has been experiencing a rate cutting cycle over the last year. In terms of the Rand, cutting rates bring weakens the local currency in the short term, however, lower borrowing costs stimulate the economy in the medium to long-term
South Africa’s National Treasury has done a good job in recent years with inflation management keeping it inside the 3%-6% target band. The chief measure for inflation tracking, known as CPI, is considered unrealistic by some economists. The broad “basket” used for tracking does not take into account the multitude of factors that may result in downward or upward bias. Currently, the basket tracks in the region of 400 items and is constantly updated. South Africa’s vast inequality results in large pricing biases when compared across the LSM (Living Standards Measure) spectrum.
Above we have South Africa’s credit ratings for the past 2 decades. The yellow line represents Moody’s, the red line Fitch and the blue line S&P global. The dotted black line represents “junk line” credit rating for SA’s foreign-currency debt. Currently, South Africa’s Long-term debt has been rated “junk” by both Fitch & S&P. Moody’s have rated us one notch above junk with a Stable outlook.
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