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Wednesday, April 1, 2009
The picture of recession

Some of us are having a terrific recession, observes Cees Bruggemans, Chief Economist at FNB: Farmers are enjoying 50% more income than last year, with a 12.7mt maize crop and good prices.

• Construction roars ahead, infrastructure-led, companies reporting explosive earnings gains;
• Some retailers continue to do well, going by results and select data, to benefit from more government spending;
• The civil service is expanding rip-roaringly, lifted further by the Budget; and,
• Gross Domestic Product for the fourth quarter of 2008 shows accelerated annualised growth of 4.5% in government services.

Not all the good news is limited to these select sectors either, he adds:
• CPI inflation dropped to 8% in January 2009, compared to a 13.7% peak five months ago;
• PPI inflation similarly dropped to 9% from an even dizzier peak;
• Both have further to fall in coming months, more than halving from their recent peaks; and,
• Private credit growth eased to 11.8%, eyeing near zero shortly, from a 30% peak.

But it isnt all happiness out there, even for farmers. They have planted 8% less acreage this season. With late rains, this reduces the maize crop estimate for the coming season to 11 million tonnes.
Even highly successful construction companies claim not to know the uncertain future. Perhaps there was too much exposure to Dubai, where wheels came off in weeks.
Speaking of which, how many of us know the extent of our wheels coming off?
Our politicians are certainly well informed, attending G20 and Davos as reality overtook us.
The motor industry plight is well known. After three years of double-digit car sales, we have now seen declines, halving sales from their peak, and with half of all dealers exiting the trade one can hardly be unaware something bad is shaping.
It wasn’t so long ago we all competed with friends, colleagues, neighbours to replace our cars with something ever younger, zassier, and expensive. Today we are competing in not replacing the car, trying to make do for as long as possible, until bumpers fall off.
“The property market has effectively died in most market segments across most regions, with prices dropping and it is taking ever longer to close a sale. Monthly transfer duty collections have halved!” notes Bruggemans.
If only this was the full extent of our woes. It now goes much deeper.
Have you visited SAISI’s website lately (SA Iron and Steel Institute)? After recording still rapidly growing steel output through August 2008, the wheels suddenly came off, mirroring global conditions. It is tragic:
September 2008 758 000 tons (-8% y/y)
October 2008 637 000 tons (-17% y/y)
November 2008 466 000 tons (-40% y/y)
December 2008 182 000 tons (-73% y/y)
January 2009 465 000 tons (-36% y/y)

This picture is being repeated elsewhere. The Cement and Concrete Institute reports accelerating decline in daily cement production during last year. In the first quarter of 2008 the decline was still only -1.9%, and -1.3% in the second quarter. But next quarter it declined faster, -5.5% and again, -7.8%, in the last quarter.
Electricity supply increased 3.8% in 2007. During the first quarter of 2008 there was only minimal growth of 1%. Thereafter through October 2008 supply averaged -2%. But in November it was -5% and in December -10.4%.

Mining output in 2008 declined, -7.5%, with gold -16% and non-gold -6% (coal basically static, platinum -10% and the rest -3%). But the declines accelerated towards year end. December 2008 was down -10.7%. “There is more downside here in 2009,” he observes.
Hotels and other sleeping establishments did well in the first quarter of last year. Nights sold grew by 13% through July 2008. Thereafter things stagnated through October, dropped, -4% in November, though picked up in December.
But hotels, guest houses and guest farms suffered severe declines in the second quarter of 2008, benefiting cheaper bed-and-breakfasts and self-caterers. Such aggressive trading down reflects deepening hardship.
Square metres of residential building plans passed declined, -35% by August 2008; by December 2008 it gradually recovering but was still at -19% off a weakening base.
Non-residential building plans stayed strong for longer but were also faltering heavily by the last quarter of 2008. September looks a peak, after which a long decline commenced.
Manufacturing output grew through September 2008, but thereafter gave way, -1.7% in October, -6.4% in November, -7% in December (and -11% when excluding the one-fifth of sectors still expanding). This reflected mostly steel and car weakness.
The SARB leading indicator fell -9.9 in November 2008 and has now been declining for 18 consecutive months.
Most remarkable was exports. After averaging R50 billion to R60 billion monthly earnings through October 2008, the collapse set in: January 2009 yielded only R36 billion.
When allowing for heavy rand depreciation (near $8 through September 2008, thereafter falling away), something terrible surfaces. Exports averaged US$7.5 billion monthly through September 2008. Thereafter export earnings more than halved within three months.
The economy continues in recession during the first quarter of this year. At least this will pull inflation lower. It should free the SARB to lower interest rates further.
“We still have prime at 14% and the rand at $10. Perhaps these positions should be reversed? A rand worth $12 and prime at 10% seem more appropriate in these challenging times as inflation heads for 6%,” comments Bruggemans.

Copyright © Insurance Times and Investments® Vol:22.4 1st April, 2009
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