Global Economic Development 2nd Quarter - Econ Developments in

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					             K Z N D e p a r t m e n t o f E c o n o m i c D e ve l o p m e n t & T o u r i s m
                                                                                                                               Quarter 2, 2009

           E CONOMIC D EVELOPMENTS                                                                                         2nd Quarter 2010

                                      I N B RIEF

Global Economic Develop-         1                           S E C O N D Q UA R T E R 2 0 1 0
ments: Second Quarter ‘10
                                                                                               Box 1: Global Real GDP Growth
Bank Stress Tests

Inside KwaZulu-Natal

                                           Th            e IMF fore-
                                                         cast world
                                      economic growth to be about


                                      4.6% in 2010, and then slow
                                      down marginally to 4.3% in
Economic Trends in SA            4    2011. This growth is largely
                                      attributable to robust eco-        %
Tourism Accommodation            4    nomic activity in Asia. In addi-
Developments                          tion, growth in emerging and
                                      developing economies re-
                                 5                                           -1.0   2004 2005 2006 2007 2008 2009 2010       1
                                                                                                                          201 201 201
                                                                                                                                 2   3      4
                                                                                                                                         201 2015
Labour Market Trends                  mains strong and significant
                                      in pulling the world average
Provincial Expenditure           5             1).
                                      (see Box 1)                                           World                           Advanced economies
Analysis                                    Recently, market con-         -5.0              EU                              Emerging & Developing
                                      cerns about the financial ca-                         ASEAN-5                         Sub-Saharan Africa
Inflation Trends in SA           6    lamity in Greece has damp-
                                      ened the global growth out-        Source:
                                                                         Source Calculations from the IMF Database
                                      look. More serious, were the
                                      contagion effects            of          On quarterly basis, eco-           sumption expenditure. The
                                      Greece’s debt crisis that           nomic growth in the U.S. fell           IMF revised the US projected
    IMF forecasts a 4.5%              could spark the resurgence of       to 2.4% annualised in                   2010 growth rate to 3.3% on
                                      another global downturn.            Q2:2010 from a previous                 the back of increased con-
     global growth rate in                  Box 2 summarises an-          growth of 3.7% in Q1:2010.              sumer confidence and vibrant
             2010                     nual real GDP growth rates of       The decline in economic                 growth in emerging markets.
                                      selected countries. China’s         growth occurred in spite of                 Japan's economic growth
                                      real GDP growth is expected         the 10.3% in export growth              slowed sharply in the
                                      to peak at about 10.5% in           and the 17% growth in busi-             Q2:2010. Real GDP rose
For more information contact us:      2010. This rate is about twice      ness investment. This solid             0.4% in annualised terms in
General Manager:                      as much as the world average        growth rate in Q1:2010 indi-            Q2:2010, the slowest pace in
                                      of 4.6%. In addition, UK econ-      cates that the process of               the past three quarters. GDP
Sihle Mkhize
                                      omy is forecast to at about         steady recovery from the                grew 0.1% compared with the                                                    recession continues despite
                                      1.2% in the same period.
Economists                                                                the lacklustre growth in con-
                                                                                                                         Continued on Page 2
Cosmas Hamadziripi            BANK STRESS TESTS
Eddie Musasiwa

                                      T                       he Committee of                 the debt crisis; and the ef-        whilst, the German bank and
Layout & Design:                              European      Banking           fects of the global financial       the Greek bank’s shortfall
                                              Supervisors    (CEBS)           turbulence.                         amounts to €3.5 billion.
Eddie Musasiwa                        recently released the results                                               Banks which failed the stress
                                                                                   The results indicated that
                                      of a European-wide stress test          seven of the banks failed the       test will work with relevant
Visit our website for more details:   conducted on 91 banks. The              test (five banks from Spain         national authorities to ad-
                                      test was done to assess the             and one bank from Germany           dress the implications             ability of banks to absorb                                                  thereof. Overall, the stress
                                                                              and one from Greece). The
                                      possible shocks caused by               banks on aggregate, face a          tests attempted to show the
                                      credit and market risks; sov-           possible loss of €566 billion       impact of the European debt
                                      ereign risks emanating from             over a period of two years          crisis on the banking sector.
Page 2                                                                                                                              2nd Quarter 2010

                                      GLOBAL ECONOMIC DEVELOPMENTS:
                                           S E C O N D Q UA R T E R 2 0 1 0
                                            Box 2: Annual Real GDP Growth                                      and rebounding exports of com-
                            REGION                2008         2009        2010                 2011           modities. The impact of the
                            World Output           3.0         -0.6         4.6                  4.3           country's worst drought in 50
                                                                                                               years is likely to weigh down
                            United States          0.4         -2.4         3.3                  2.9           heavily on projected 2010 eco-
                            Japan                 -1.2         -5.2         2.4                  1.8           nomic growth of 4.3%.
                            United Kingdom         0.5         -4.9         1.2                  2.1                 Sub-Saharan African (SSA)
                            Sub-Sahara Africa      5.6          2.2         5.0                  5.9           economies continued to benefit
                            Brazil                 5.1         -0.2         7.1                  4.2           from rising demand for exports
                            Russia                 5.6         -7.9         4.3                  4.1           and generally buoyant commod-
                            India                  6.4          5.7         9.4                  8.4           ity prices, resulting in a notable
                                                                                                               surge in economic activity in the
                            China                  9.6          9.1        10.5                  9.6
                                                                                                               sub-continent. Real GDP growth
                            Source IMF Database
                            Source:                                                                            in SSA declined from 5.6% in
                                                                                                               2008 to 2.2% in 2009 and is
                                 Continued from Page 1          widely anticipated, as Chi-                    expected to expand to 5.0% in
                            previous quarter, when it rose      nese officials have been im-                   2010.
                            to a revised 1.1%.                  plementing measures to cool                          Box 3 illustrates the global
 GDP in UK accelerated                                          some sectors of the economy                    inflation trends for selected
                                 Germany's economy ex-
                                                                in a bid to achieve a so-called                regions. The Advanced and EU
       to 1.1%              panded at a rate of 2.2% in
                                                                soft landing for the economy                   economies show inflation rising
                            Q2:2010, its fastest pace of
                            growth since reunification. This    after years of blistering                      modestly ex-post the financial
                            reaffirms that Germany remains      growth. The IMF’s average                      crisis to converge at 2% in the
                            the growth engine of Europe. Its    growth expectation for China                   medium term. The world aver-
                            2.2% growth sits under threat       is 10.5% for 2010 (see Box                     age will converge to about 3%
                            from Greece’s woes which re-        2)
                                                                2).                                            over the same horizon.
                            mains firmly in a recession.             Russia’s economic                               SSA’s inflation rates are
                            Nonetheless, Germany’s strong       growth accelerated to 5.2% in                  the highest. In the 2008/2009
                            growth has raised hopes that its    Q2:2010 compared to a 2.9%                     period its inflation peaked at
                            success might spill over to the     growth in the last quarter.                    about 12%. This was twice as
                            rest of Europe. The IMF fore-       Russia's recovery from last                    much as the world average.
                            casts growth in the German          year's record 7.9% decline in                  High inflation rates are a deter-
                            economy to average 1.4% in          GDP, has gained strength                       rent to investment resulting in
                            2010.                               from rising commodity prices,                  sub-optimal growth.
                                 GDP growth in the UK ac-       buoyant household demand
                            celerated at 1.1% Q2:2010,                                   Box 3: Global Inflation Trends
                            compared with an increase of
                            0.3% in the previous quarter.         14.0              Wo rld                                          Advanced
                            The growth in Q2:2010 was                               EU                                              Emerging & Develo ping
                            broad based with the largest          12.0              Sub-Saharan A frica
  China’s growth eased to   contributions coming from busi-
                            ness services and finance. Total
          10.3%             services output rose 0.9%, com-
                            pared with a rise of 0.3% in the
                            previous quarter. There was              8.0
                            also growth in distribution, ho-
                            tels and restaurants and in

                            government and other services
                            but transport, storage and com-          4.0
                            munication declined.
                                 China's economic growth
                            eased somewhat in Q2:2010,               2.0
                            suggesting that government
                            efforts to slow expansion and            0.0
                            prevent overheating were start-









                            ing to be felt. China’s GDP grew      -2.0
                            at an annual rate of 10.3% dur-
                            ing Q2:2010 following a growth       Source Calculations from the IMF Database
                            rate of 11.9% in the previous
                            quarter. Moderating growth was       NB: Projections are from 2010
Page 3                                                                                                                        Page 3

 I N S I D E K WA Z U L U - N AT A L
                         Box 4: Annualized Regional Growth Rates per Quarter
                                                   2009*                                2010
          Province                  Q2               Q3             Q4            Q1             Q2
 Western Cape                       -3.7             1.5            3.8           3.8            3.1
 Eastern Cape                        -3              1.9            3.9           3.5            2.7         KZN economy grew by
 Northern Cape                       1.7             0.4            4.5           4.7            3.2
 Free state                         -2.4              0             2.3           4.9            2.9
 KwaZulu-Natal                      -3.9              1.6            3.7          4.0            3.3
 North West                         -0.1             -1.7            1.5           6             1.8
 Gauteng                            -2.8              2.2            4.3          4.3            3.8
 Mpumalanga                         -2.9             -1.8            0.6          6.5            2.6
 Limpopo                            -2.6             -4.4           -2.3          7.6            2.8
 South Africa                       -2.8              0.9            3.2          4.6            3.2
  Source StatsSA

               he KZN economy              & quarrying sectors retreated    national average rate. North-
               is estimated to             by 1.8% and 23.1% respec-        ern Cape recorded the least
               have grown by               tively.                          growth rate of 1.8%.
               3.3% in Q2:2010                 Box 4 illustrates the             Box 5 shows KZN quar-
 following a positive growth of            growth trajectories for South    terly GDP growth rate. KZN
 4.0% in the previous quarter.             Africa and the regional econo-   found was at its worst in
 This growth of 3.3% was slightly          mies from Q2:2009 to             Q1:2009. Since the GDP has
 above the national growth of              Q2:2010. Notably, all the        risen moderately. Since the
 3.2%. The sectoral growth in              provinces recorded positive      after-math of the recession,
 Q1:2010 was as follows; agri-             growth rates in Q2:2010. Gau-    Q1:2010 recorded the highest
 culture (10.3%), manufacturing            teng (3.8%) and KwaZulu-         growth rate. There is however
 (6.0%), wholesale & retail; ho-           Natal (3.3%) regional econo-     a positive outlook given the      Agriculture grew by
 tels & restaurants (5.3%);                mies accelerated faster than     recent cut in the repo rate by
 transport & communication                 the national average of 3.2%     the SA Reserve Bank and the            10.3%
 (2.9%), general government                as growth in the manufactur-     multiplier effects of the 2010
 services (2.7%); and commu-               ing sector for these two         World Cup expenditure.
 nity, social & other personal             economies rebounded. How-
 services (2.9%). Growth in the            ever, other the provinces re-
 electricity & water and mining            corded growth less than the
                                           Box 5: KZN Quarterly GDP



                                                                                                             KZN economic growth
       -4.0                                                                                                    second largest

               2008q1 2008q2 2008q3 2008q4 2009q1 2009q2 2009q3 2009q4 2010q1 2010q2

  Source StatsSA
Page 4                                                                                                       2nd Quarter 2010

                                                ECONOMIC TRENDS IN SA
                                                  Box 6 : GDP Revisions, 2009 –% Change Seasonally Adjusted
                                                                               2009 Seasonally Adjusted
                                                Industry                                 (%)
                                                                                 Q2      Q3        Q4            Q1             Q2
                            Agriculture, forestry & fishing                    -15.8    -11.8     -7.6           3.0            11.6
                            Mining & Quarrying                                  15.8     -5.8      4.6           15.4          -20.8
                            Manufacturing                                      -11.1     7.6      10.1           8.4             6.9
    SA growth slows to      Electricity, Gas and Water                           1.9     4.2       0.9           4.9            -0.2
                            Construction                                         8.7     6.1       3.6           2.1             1.5
         3.2%               Wholesale & retail trade, hotels, & restaurants     -5.9     -1.1     -0.7           3.3             5.8
                            Transport, storage & communication                  -1.0     1.2       1.9           2.4             4.5
                            Finance, real estate & business services            -3.8     -1.5      1.1           2.5             3.0
                            General government services                          3.1     4.9       7.0           2.8             3.6
                            Personal Services                                    3.3     3.5       3.1           2.0             4.6
                            Total Value Added                                   -2.4     1.4       3.5           4.4             2.9
                            Taxes less Subsidies on products                    -6.9     -3.4      0.7           6.5             6.3
                            GDP at market prices                                -2.8     0.9       3.2           4.6             3.2
                             Source Stats SA

                                   rowth in the last quarter    sectors by contribution to GDP;    tion to growth.
                                   is further confirmation      manufacturing sector (1.1%              The outlook for these sec-
                                   that South Africa is sta-    based on growth of 6.9%);          tors is generally weaker in the
                            bilising after the economic         wholesale, retail, motor trade &   second half of the year; amid a
    Agriculture surges to   downturn of 2008/09. Eco-           accommodation industry (0.7%       deteriorating global landscape
                            nomic growth in South Africa        based on growth of 5.8%), fi-      and industrial action in key
      11.6% in SA           has gathered increasing mo-         nance, real estate & business      value-adding sectors. Electricity
                            mentum since the Q3:2009.           services and general govern-       and gas also recorded a sub-
                            Real GDP growth, at market          ment services.                     dued growth of -0.2% on the
                            prices, for the Q2:2010 accel-
                                                                     Overall, Q2:2010 growth       back of constrained demand as
                            erated at 3.2%, although at a
                                                                was counteracted by the nega-      consumers become more cau-
                            slower pace than the 4.6%
                                                                tive growth of -20.8% registered   tious following July price adjust-
                            registered in the Q1:2010
                                                                in the mining sector growth.       ment. Other sectors such as
                            (see Box 6).                        Hence, on a net basis, the non-    Retail & trade may be kept
                                  The main drivers of this      agricultural primary and secon-    buoyant by the effects of the
                            growth were the following           dary sectors made no contribu-     World Cup.

                            T O U R I S M A C C O M O DAT I O N D E V E L O P M E N T S

                                       nternational tourism     (6%), while Europe registered      improved performance, with
                                       demand is steadily       the poorest growth of 0.3%.        occupancy and average room
                                       rising. Preliminary      France is ranked the world’s       rates on the rise. Surveys indi-
                            figures published by United         top tourism destination fol-       cated that foreign visitors
                            Nations World Tourism Organi-       lowed by Spain and USA.            spend on average 13 nights in
                            zation (UNWTO) for the                   Data collected by the De-     SA. A large number of foreign
  2.3 million travellers    Q1:2010 established that            partment of Home Affairs at the    tourists come from the United
                            international arrivals are set to   entry borders of South Africa,     Kingdom, Germany, Africa,
 went through SA borders    rise by 2% in 2010 following        indicated that 2.3 million trav-   North America, Netherlands
                            fourteen-months of consecu-         ellers passed through SA bor-      and France.
     in March 2010          tive subdued growth. Growth         ders in March 2010. The vol-            In KZN, the state-of-the-
                            varied between world regions        ume of travellers in February      art, Durban International Con-
                            in the first four months of this    and March 2010 increased for       vention Centre, still remains a
                            year. In the Middle East tour-      both SA residents and foreign-     major pull factor of tourism to
                            ism demand grew by 33%, Asia        ers.                               the province. This is largely,
                            and the Pacific (12%), Sub-                                            through the hosting of major
                            Saharan Africa (7%), Americas            Statistics from the accom-
                                                                modation sector also reflects      international conferences.
Page 5                                                                                                                   2nd Quarter 2010

                                                LABOUR MARKET TRENDS
                                          Box 7 : Labour Market Indicators in KwaZulu-Natal and Comparative Regions
                                                            South Africa   Gauteng KwaZulu-Natal                              Western Cape
                                                           Q1:10 Q2:10 Q1:10 Q2:10 Q1:10 Q2:10                                Q1:10 Q2:10
                            Working Age Population (000s) 31,350 31,399 7,201 7,209 6,426 6,439                               3,527 3,516
                            (15-64 years)
                            Labour Force (000s)            17,113 17,054 5,081 5,063 2,998 2,984                              2,404      2,413
                            Employed (000s)                12,803 12,742 3,703 3,690 2,418 2,362                              1,915      1,894
                            Unemployed (000s)              4,310 4,312 1,378 1,272 580      622                                489        518
                            Not Economically Active        14,237 14,346 2,120 2,147 3,428 3,456                              1,122      1,103
   Unemployment increases   Discouraged Work Seekers       1,686 1,907 236 242        484   487                                 51         42
                            Other                          12,437 12,438 1,885       2,944 2,969                              1,072      1,061
        to 25.3%            Unemployment Rate (%)           24.3    25.3 27.1 27.1 19.3    20.8                               20.3       21.8
                            Absorption Rate (%)             41.5    40.6 51.4 51.2 37.6    36.7                               54.3       53.6
                            Labour force participation (%)  54.8    56.3 70.6 70.2 46.7    46.3                               68.2       68.6
                            Source Stats SA

                                          outh      African                                                      per vote and economic classi-

                            S             employment
                            informal) shrank by 61,000
                                                                                                                 fication for 2009/10 financial
                                                                                                                       The Departments of
                            jobs in Q2:2010 compared            ANALY SIS                                        Health and Treasury exceeded
                            to 171,000 jobs lost in                                                              the 100% mark. In general,
                            Q1:2010. Accordingly, em-                                                            the budget expenditure analy-

                            ployment declined from                           ox 8 shows the the                  sis province-wide was satis-
                            12.803 million to 12.742                         summary of the pre-                 factory.
                            million during same period.                      liminary actual expen-
                            The labour force also shrank                     diture for the province
   KZN’s unemployment       from 17.113 million to
                                                                      Box 8 : Provincial Expenditure Analysis by Vote (2009/10)
                            17.054 million again in the
    increases to 20.8%      same period (see Box 7) 7).                      Sport s & Recreat ion
                                  The decrease in employ-
                                                                                    Art s & Cult ure
                            ment was largely driven by
                            the formal non-agricultural                              Public Works
                            sector where employment                           Social Development
                            declined by 129,000 jobs.
                            On the other hand, employ-                                   Transport

                            ment in the informal non-            Coop Gov & Tradit ional Aff airs
                            agriculture sector increased
                                                                                 Royal Household
                            by 115,000 jobs during the
                            same period bringing total                      Com. Saf et y & Liaison
                            employment in the sector to                        Human Set t lements
                            2.124 million.
                            Incidentally, the unemploy-
                            ment rate increase cut                            Provincial Treasury
                            across many provinces dur-                                   Educat ion
                            ing Q2:2010 in SA. In KZN,
    KZN Treasury and        unemployment rose from                            Econ Dev &Tourism

                            19.3% in Q1:2010 to 20.8%.         Agric, Environ Af f airs & Rural Dev
   Health exceeded 100%     This percentage increase is
                                                                                        Legislat ure
                            similar to that of the Western
  expenditure in 2009/10    Cape (see Box 7) Gauteng
                                               7).                           Of f ice of t he Premier
                            on the other hand, remained
                            at     its previous rate of                                                 0   20   40    60    80    100    120
                            27.1% , albeit it being the
                            highest in comparison to
                            KZN and Western Cape.
                                                               Source Public Finance, KZN Treasury
Page 6                                                                                                                            2nd Quarter 2010

                                                   INF L ATIO N TRE ND S IN S A
                                                                  Box 9 : Geographical Headline Inflation

                                                                                                         2010                                  Q2:2010
                                 Geographical Area                                   April                May                    July
                                                                 Average                                                                       Average
                              Western Cape                         6.2                5.5                     5.3                4.8               5.2
                              Eastern Cape                         4.8                4.0                     5.3                3.7               4.3
                              Northern Cape                        5.0                3.8                     4.0                3.6               3.8
                              Free State                           5.3                4.4                     4.1                3.9               4.1
                              KwaZulu-Natal                        4.4                3.5                     3.4                3.2               3.4
                              North West                           4.9                 4                      3.9                3.7               3.9
                              Gauteng                              5.8                4.8                     4.6                4.2               4.5
                              Mpumalanga                           5.2                4.1                     4.0                3.8               4.0
                              Limpopo                              4.2                4.7                     3.1                3.1               3.6
                              South Africa                         5.7                4.8                     4.6                4.2               4.5
                               Source Stats SA

                                                 outh African            Inflation in KwaZulu-Natal                   Across all provinces, the West-

                                  S              consumer
                                                 prices have
                              continued on a downward
                                                                     declined from an average of
                                                                     4.4% during Q1:2010 to 3.4%
                                                                     in the Q2:2010. KZN inflation
                                                                                                                      ern Cape’s inflation rate was
                                                                                                                      above the national average of
  SA inflation still range-   trajectory since September             figures substantiate the com-                         The 2010 inflation data
                              2008. This trend intensified           monly accepted notion that the                   augurs well for the outlook for
          bound               throughout the first half of           general price level is lower in the              inflation with the disinflation-
                              2010 where inflation de-               province as compared to other                    ary trend likely to continue
                              clined from 6.2% in January            regions. This is so given the                    until Q3:2010, when the ef-
                              to 4.2% in June. The rate              bread basket status of the prov-                 fects of the general increase
                              further declined to 3.7% in            ince and that some of South                      of prices during the World
                              July 2010. The decline in              Africa’s major manufacturing                     Cup, wage increments and the
                              inflation throughout the sec-          companies are headquartered in                   24.8% electricity tariff adjust-
                              ond quarter was anchored               the province such as Toyota,                     ments will be felt. These
                              largely, by general declines           Clover and Unilever. On the                      forces are, however, not
                              in consumer price index for            other hand, Western Cape had                     strong enough to push the CPI
                              transport (0.8% in June),              the highest Q2:2010 geographi-                   inflation beyond the target
                              food & non-alcoholic bever-            cal inflation rate of 5.2% fol-                  range during this year.
                              ages (0.4% in June), recrea-           lowed by Gauteng with 4.5%.
                              tion and culture (0.2% in
                                                                                            Box 10: South Africa CPI and PPI
                              May) and household con-
                              tents (0.3% in April).                     10
                                   Geographical consumer
                              price inflation in the majority              8                      PPI                     CPI
                              of provinces declined signifi-
                              cantly between the Q1:2010                   6
                              and Q2:2010 (see Box 9)      9).
  KZN inflation lowest in     This trend is similar to the                 4
                              general inflation trajectory
          SA                  observed at national level

                              where the rate nose-dived
                              from extremely high levels
                              achieved in July 2008. The                   0







                              decline in the inflation rates


                              across the provinces has                    -2
                              been buttressed by accom-                                       2009                                      2010
                              modative monetary policy
                              stance of the Reserve Bank.
                              In addition, this has seen
                              inflation fall within the target            -6
                              range of 3-6% (see Box 10)10).
                                                                         Source: StatsSA