With the Emerging Market (EM) class by early February coming out of a screaming nosedive, and then executing an amazing rebound through today, the Rand clawing back nearly 9% and the JSE All Share reaching new record highs north of 48500, you would have expected this to be reflected in the local economy.

This was not at all the case, except that many companies continued to offer sterling results, underpinning their improving market ratings, a matter of select market performance, strict cost control, strong Rand hedges, and increasingly diversified balance sheet portfolios raking up good earnings elsewhere.

Our financial market performance was entirely a reflection of global events, especially a decline in uncertainty and market volatility as global participants gained greater confidence regarding the Fed intentions, China weathering its slowing, with Japanese stimulatory results seen as encouraging and belief growing about more ECB support to come.

In contrast, domestically the economy kept sending poor signals.

Eskom lost a 600MW boiler, further worsening its tight supply condition.

Job losses during the quarter were substantial, especially in the platinum sector where the losses run in the ten thousands, even if not yet fully booked.

SA mining output fell heavily in February, some 7% annualised down on January and 5% down year-on-year. It wasn't only a platinum story, with PGMs output down 36% on a year ago. Diamonds were 8% off, coal 5%, gold 4%. Only iron ore was a robust performer, up +8%.

SA manufacturing also had a poor February, with January growth revised down from +2.5% to 2.2%, and February 2% annualised down on January and a meagre +1.4% up year-on-year. The monthly fall was reflected in motor vehicles -6%, steel -3%, chemicals -3%, oil refineries -2%, textiles/clothing -2% and food/beverages -3%. This generally poor performance was also reflected in subdued Kagiso PMI readings.

The SA motor trade saw passenger car sales decline 4% year-on-year in 1Q14. 

SA consumer confidence remained strained, with especially a negative view about purchasing durable goods. Though own financial prospects still notched up a modest confident majority, the overall outlook was more restrained. This continued to be confirmed by only mid-single digit household credit growth.
The SARB leading indicator continued its steady sideways pattern of the past four years  holding out as yet little hope of an imminent acceleration of activity.

Generally, it was a very poor start to the year, and expected to continue in the 2Q14 as the platinum strike is yet to be resolved and subsequent mine recovery will take time, the Eskom electricity supply condition will likely tighten this winter, car sales are probably not finished retreating, and household income is likely to show only limited gains,  with job insecurity and only limited credit growth key features.

The 3Q14 and 4Q14 may be better for mining once platinum is back on stream, but it is then when we can expect the full fallout of the next industrial wage round which, as in recent years, is unlikely to be an easy or cheap one.

A reason to keep the expectations controlled and the forecast numbers modest?
 
Cees Bruggemans
Consulting Economist
Bruggemans & Associates
Website    www.bruggemans.co.za
Email   economics@bruggemans.co.za
Twitter   @ceesbruggemans
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