‘Optimism for the first time since September’

All the economic signals are currently showing red, according to Luke Doig, senior economist at Credit Guarantee Insurance Corporation (CGIC), and it’s still going to be some time before the SA economy escapes the clutches of the crisis. “The almost 22% year-on-year fall in manufacturing production and sales in April 2009, hard on the heels of the sector’s similar contraction in GDP for the first quarter of 2009, provides the starkest evidence of the precipitous decline in the domestic business cycle,” he told FTW. “Whilst it would be folly to assume that no further shocks by way of negative economic indicators may emanate, the vital issue is whether we are currently at the bottom of the cycle.” However, the business confidence measures are not all dismal. After recording a record low of 35.6 in April, Doig pointed out that the Kagiso purchasing managers’ index (PMI) ticked up to 37.3 in May – and he expected it to manage to eke out further gains in the months ahead. “Three of the nine sub-indices perpetuated their poor performance in April,” he said, “with employment and purchasing commitments remaining subdued, reflecting weak demand and a lack of short-term confidence. “However, expected business conditions indicated net optimism for the first time since September last year.” But, Doig added, this does not mask the pain that many are experiencing. He highlighted that manufacturing sales of iron and steel products (22.9% contribution to total sales) declined 26.4% year-on-year, while motor vehicle products (10.9%) fell by almost half and furniture (5.2%) saw sales plummet 31.1%. Food and beverages (15.4% weighting of sales) managed to contain their sales losses to 4.8% in April 2009 compared to a year earlier. “In March,” Doig said, “we were forthright in warning that April would be adversely affected by disruptions caused by public holidays and advocated frontloading interest rate cuts at that time. “The business environment is going to remain challenging for months to come, while outlandish labour union wage demands do very little to help matters. Further pressures to costs in the short term may also be expected – fuel price under-recoveries of almost 40-cents per litre and 31-cents per litre for petrol and diesel respectively, underline these fears.”