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The Real Economy Bulletin - First Quarter 2016

FIRST QUARTER 2016

Main bulletin: The Real Economy Bulletin - First Quarter 2016

In this edition:

Production and sales: The first quarter of 2016 was marked by a contraction in GDP, with the economy reported as shrinking by 0,3%, or 1,2% on an annualised basis. The immediate cause of the downturn was a 4,9% quarterly decline (equal to 18% in annualised terms) in mining and a 1,7% fall (or 6,5% at an annual rate) in agriculture. These contractions had a particularly sharp impact on overall growth because of a longer-term slowdown in growth in manufacturing and, to a lesser extent, the rest of the economy, which dates back to around 2013. Read more.

Employment:  In year-on-year terms, employment in the real economy contracted by 2,6%. In agriculture it reportedly shrunk by 1,7% and in manufacturing by 7,9%, while construction saw an increase of 3%. In the rest of the economy, employment expanded by 3%. In mining, using the employer survey (which is considered more reliable for this sector), employment fell by 5.9% from the last quarter of 2014 to the last quarter of 2015. Read more.

Trends in trade: The year to the first quarter of 2016 saw a continued contraction in exports for both manufacturing and mining in dollar terms. In contrast, in constant rand both sectors saw growth, with manufacturing expanding by 4,6% and mining by 0,9%. Despite the drought, agriculture witnessed only a relatively mild dollar contraction of 6,5% and strong rand-denominated growth of 19%. Read more.

Profitability and investment: Profitability among all sectors of the economy declined in the final quarter of 2015. The mining sector continued to post losses, as it did throughout 2015, with fourth quarter losses almost doubling over the previous quarter. While manufacturing remained profitable overall, its profits also continued to decline, following a negative path that began in 2011. For the economy as a whole, the investment rate dropped sharply, but it rose slightly in manufacturing. Read more.

Behind the trends: A number of long-term factors continued to act as a drag on the South Africa economy, key among them being the depressed global economy, weak commodity prices, and the impact of the drought. These factors have been aggravated by pro-cyclical fiscal and monetary policies. Read more.

Fiscal pressure on industrial policy programmes: The 2016/17-2018/19 Medium Term Expenditure Framework (MTEF) is the product of a difficult economic climate. As a slowing global economy and depressed commodity prices put pressure on the budget, key government departments will have to grapple with the dual challenge of constrained fiscal conditions and the ever more pressing need to boost economic growth. One result is a cut in the Department of Trade and Industry’s (the dti’s) budget in nominal terms, with a particularly sharp impact on incentives for business. Read more.

Briefing note - The crisis in the steel industry:  The crisis in the steel industry is evident through a number of measures. Steel production declined by 15% from 2010 to 2015, for a total fall of 33% from 2008. In dollar terms, steel exports fell by 32% from 2010 to 2015, and ferro-alloys dropped by 24%. Profitability in the steel value chain shrank quickly from 2010 to 2014, with basic iron and steel posting losses for most of the past five years. The losses sparked a run of closures, with the number of foundries in South Africa declining from 140 in 2009 to 95 in 2014, and key ferro-alloy producers Evraz Highveld and Samancor forced into major restructuring. Iron and steel refining shed 30 000 jobs between 2011 and 2015, with ferro-alloy producers applying for a further 3 000 retrenchments in the first quarter of 2016 alone. Read the summary note or full briefing note A strategic response to the crisis in the steel industry.