The prolonged platinum strike, rising inflation and the prospects of higher interest rates are hampering business and consumer confidence in KwaZulu-Natal and holding back the economy. The latest KwaZulu-Natal barometer, as compiled by Mike Schüssler of Economists.co.za, declined 1.8% year-on-year, the second consecutive month of decline, and was also down on a quarter-on-quarter and month-on-month basis.
 
Slower growth and increased stress
The decline in the barometer was due to a combination of slower economic growth and higher economic stress.  The KwaZulu-Natal growth index increased 0.5% year-on-year, while the economic stress index, which measures negative factors like inflation, interest rates and unemployment, increased 2.4%, the most in eight months. This was caused by growing unemployment and consumer prices.  The economy seems to be in a period of stagflation, characterized by high inflation and low growth. Even if the national economy does not go into a recession, growth will disappoint this year, both in South Africa and in KwaZulu-Natal. This has to do with more than just the strikes, which lead to the loss of 9 million working days in the first half of the year. Electricity and infrastructure constraints hold back the economy, as does the prospect of higher interest rates.
 
 
 
Municipalities underspending
Spending by the three spheres of government in KwaZulu-Natal is held back by underspending of around 16% by the province's municipalities. This, combined with very low real growth in spending meant that the government index declined 4.1% year-on-year despite the fact that the central government spent 11% more. In many cases the government seems to spend all its money in the last quarter of the fiscal year through March and then spending dries up in the new financial year. The problem is that the spending isn't even throughout the year, specifically in the municipalities, and they seem to not be spending all the money that they get from the central government. This is of great concern and is influencing the whole of the economy.
 
Construction worries
The slump in government spending, along with the decline in construction is of great concern as it points to worries about the longer term future of the South African and KwaZulu-Natal economy because people are holding back on big, expensive projects. The construction index declined 3.8% year-on-year and while it increased 1.5% month-on-month, it was down 1.6% on the previous quarter. Buildings completed declined by 12.5%, which reflects the lack of positive movement in the property cycle.
 
Banks still demanding high deposits
The KwaZulu-Natal finance, real estate and business services index grew 0.2% year-on-year after the previous month's 1.5% decline. Property transfers grew 0.5% after six months of decline. Mortgages were down 2.7% from a year ago, which indicates that banks are still demanding higher deposits from buyers. It's very difficult to see how the huge number of strikes and the potentially higher interest rates will later be good for the construction industry and real estate market. Durable goods are still going to be under pressure, probably for the rest of the year. Advertising grew 0.2% after the previous month's 12.8% increase. This shows retailers are probably starting to use advertising to lure customers back into the shops because they want their share of a smaller pie.
 
Trade suffering from low confidence
The trade index shows the effect of lower business and consumer confidence on the willingness to spend money on durable goods. The index declined 1.1% year-on-year and was also down on a month-on-month and quarter-on-quarter basis. Retail sales declined 0.6%, and vehicles sales 11.7%. While vehicle sales probably looked better in June than in May, the trend remains negative and has been negative for nine months in a row. The business of hotels and restaurants has been in decline for 27 months now and petrol sales declined by 3.2%. Petrol sales have been down for the whole of South Africa for several months, an indicator of consumer stress. The combined effects of higher petrol prices and better fuel efficiency leads to less petrol sales, which shows that consumers are very careful about how they spend their money. Wholesale still grew by 7.8%, but wholesale sales will include sales to other African countries and pre-arranged contract sales which are difficult to capture. Ultimately the consumer in KwaZulu-Natal and South Africa has now come under tremendous pressure. One of the reasons is that money being sent home from the mines has diminished and it will take a few months before it comes back to normality. 
 
Communications growing
The KwaZulu-Natal transport and communication index grew 7.7% year-on-year, 0.4% month-on-month and 2.1% quarter-on-quarter. This was mainly driven by the 19.9% increase in communications as people buy equipment like routers and smart phones to access the internet. Passenger arrivals at the King Shaka International Airport declined by 3.9%. Less people are probably using airlines and rather using land transport to reduce costs. However, land transport also declined, by 0.5%. The volume of cargo handled by the province's two ports declined by 4.1%. The power outages earlier in the year have given port activity a bit of a knock, but there should be some recovery in coming months, especially in Richards Bay due to increased exports of coal, barring any negative events like more strikes.
 
Electricity use increased despite load shedding
Despite the earlier power outages due to load shedding, the electricity index grew 2.7% on a year ago, higher than the country's average increases. This shows that some businesses in KwaZulu-Natal are using the power that the Bayside aluminium smelter usually uses.
 
Manufacturing growth slowest in five months
The manufacturing index grew 0.2% year-on-year, the slowest in five months, and was negative month-on-month and quarter-on-quarter. However, the performance of KwaZulu-Natal's factories will most likely not be as dismal as some other sectors of the provincial economy. Data from Statistics South Africa show manufacturing has been performing better than expected, but on the whole the sector's output will probably get a lot worse before it recovers again.
 
Agriculture going against trend
The one bright spot in the KwaZulu-Natal economy is agriculture, which seems to be going against the trend as it follows its own cycle. The agriculture index grew 7.7% year-on-year. This was driven by a 6% increase in sugar cane crushed, a 14% increase in meat production and a 35% increase in field crops. Forestry, which showed no change, was the only drawback for the agriculture index.
 
Coal supports mining index
The other primary sector in KwaZulu-Natal, mining, increased by 0.7%. Due to the weight of coal in the province's mining index, the index continued to grow and did not follow the same downward spiral as in provinces like Limpopo and the North West, where mining output was hit directly by the platinum strike.
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