Heading for a downturn?

[Dave A]

I'm not sure that people want to hear this, but the cracks are starting to show through the wallpaper.

The unprecedented economic growth in Gauteng is fading following a weakening in business conditions within the province, the Gauteng Business Barometer (GBB) said on Wednesday.

In a statement, the GBB said growth levels had tapered off and the economy was set to experience a slowdown that would last until next year before growth accelerates.

Economist Mike Schüssler said the main reason for the decline was higher inflation and interest rates, which pushed up the economic stress index, a sub-section of the GBB that measures negative factors in the province.

The economic stress index rose by 1% in May compared with April. It was also 5,7% higher than the level in May last year and suggests that business conditions were as bad as in 2003, he said.
full story from M&G here

I'm wondering what is being factored in to suggest that growth will accelerate next year - but this little part may be pertinent:

Standard Bank's chief economist Goolam Ballim said enterprises should not rush out to fix their borrowing rates at their banks out of fear that it would rise further.

"The premium that financial institutions charge to fix rates is likely to exceed the potential for any further increases in interest rates. It is also likely that rates may start to fall in a year's time.

Hmmm. I can't help think the drivers that are going to turn interest rates downward in fairly short order are going to involve a fair amount of pain.

Tighten your seatbelts. This could be a bumpy ride.

[RKS Computer Solutions]

Great reading... What, in everyone else's opinion, is the lookout for online businesses? National, not just by region...

[Dave A]

Thanks Riaan. Not a call I enjoy making. But I predicted the rise of interest rates right in the beginning when everyone was still talking of them going down.

This is one of those instances again when I hope I'm wrong. But the warning signs are there.

[Dave A]

Well, if there was any doubt, latest vehicle sales figures which is a good indicator of economic activity are really starting to head South.

South African vehicle sales fell by 13.8 percent, or 7,647 units, year-on-year (y/y) in November to 47,707 units, led by a sharp decline in the passenger car market, new data show.

Sales for new passenger cars fell 15.7 percent, or 5,461 units, y/y in November to 34,796 units, and compared with October sales during which 34,555 new cars were sold, the new car market showed a decrease of 5,220 units or 15.1 percent.

"Taking account of new car sales not reported in detail to Naamsa, the November, 2007 total new car market had recorded a decline of 16.5 percent compared to November, 2006," the group said.

Sales of new light commercial vehicles, bakkies and minibuses at 14,973 units last month reflected a decline of 2,412 units or 13.9 percent compared with the same time last year.
full story from Business Report here

The drop in light commercial vehicle sales is particularly disturbing.

[Debbiedle]

Great reading... What, in everyone else's opinion, is the lookout for online businesses? National, not just by region...

Online, me thinks is about to spiral. Read a very interesting article on the boom of online sales something to do with consumer education and trust!

[Marq]

Crunch Time still coming

Another view on the rates issue is that we are still going uphill for quite a while yet as we head onto 2010.

This magic year, that everybody is pinning their hopes on, is going to create a crunch as building, related industries, labour and preparations start to feel the shortening on the timeline as deadlines start to get squeezed. This is turn means means higher prices and increased inflation numbers.

Along with

• increased and unstable oil prices and related knockon effects,
• electricity and energy problems,
• municipality rates increases and mismanagement,
• crime, grime and corruption not tamed,
• Bulging prison population and justice system problems,
• Big unknown influx of legal and illegal immigrants,
• disfunctional education and healthcare sectors,
• skills shortages and labour problems increasing,
• High unemployment and perceived poor class gap,
• Insistence of government AA and BEE policy,
• the zuma affair and the anc unrest,

the interest rate could just take a backseat in the big picture.

When I started this post, I was a bit more positive than I am now that I thought about it a bit and made a list (and probably not a complete list - no external influences in there for example) - Maybe shouldn't have done that.....mmm

I agree - we are in for a bumpy ride and I think its going to be for a lot longer than everybody is reckoning on right now.

The standard economic models are going to bend (or bent already) with all these negative influences and not much on the positive front.

The sheeple are starting to squeal about not affording bonds and crying as a dismal holiday season approaches. I don't think we are there yet or even close, but come the second quarter of next year, I believe crunch time could be upon us in a big way.

Since the last big crunch - (mmm....+- early/middle 80's?) we have a new generation of earners across a different set of demographics with a similar spend pattern. Its going to be interesting to watch how this plays out and what the reactions are going to be.

Optimism rules - will have to be the new motto.

[Dave A]

Optimism rules - will have to be the new motto.

That's really important. One thing to remember is that we're talking about the mean average here. There is still plenty of money flowing through the system. One is just going to have to be a little sharper and improve your share.

[Chatmaster]

Just thought I'd mention that the NCA was probably a great contributor to the vehicle sales decline.

[Dave A]

More news on emerging general trends.

South Africa's Business Confidence Index (BCI) dropped to 94,8 in December 2007 after the BCI declined to 95,8 in November 2007, the South African Chamber of Commerce and Industry said on Wednesday.

The December 2007 figure is the lowest BCI level since November 2003 and a new low for 2007.

Of the BCI's sub-indices, trade, residential construction and import volumes "declined substantially", inflation moved higher while the stock market lacked direction, according to a statement issued by the chamber.
full story from M&G here

Then on vehicle sales.

South African new vehicle sales dropped by 15,1% to 41 813 units in December compared to the same month in 2006, the National Association of Automobile Manufacturers (Naamsa) said on Wednesday.

Including sales from Associated Motor Holdings -- total sales were 44 926 vehicles in December.

New vehicle sales during the whole of 2007 fell by 5,2% to 612 707 compared to 2006, after registering four successive record years previously, Naamsa said.

"On a market segment basis, sales during December 2007 reflected a mixed picture with the new car and light commercial vehicle markets showing a year-on-year decline of 19,1% and 10,7% respectively, whilst medium and heavy commercial vehicle markets reflected a year-on-year improvement of 19,5% and 8,1%, respectively, relative to the corresponding month last year," Naamsa said.
full story from M&G here

Finally, Stanlib on investment prospects.

Investors may face a bumpy ride in the short term, but market prospects for later in 2008 look relatively positive, said unit trust company Stanlib on Wednesday.

Stanlib forecasts a rise of 18% in the JSE all-share index over the next 12 months, assuming corporate earnings growth stays solid at 17%, that interest rates are close to the top, that the commodity boom continues and global growth predictions hold up.

"The major concern is that the credit debacle could take the United States into recession and South Africa will feel the fall-out," Stanlib said.

However, Paul Hansen, Stanlib's retail investing director, does not believe this will happen.

"We believe we've entered a correction and the bull-run will re-assert itself," he said.

"The correction may be quite short, but for the immediate future, investors should be aware that risks are significantly higher than a year ago."
full story from M&G here

Of course, the term "relatively positive" could mean that the rate of bad news just slows given the current scenario.

[duncan drennan]

New vehicle sales during the whole of 2007 fell by 5,2% to 612 707 compared to 2006, after registering four successive record years previously, Naamsa said.

Down 5.2% after four successive record years, is that really such a shock to people? It gets more expensive to buy a vehicle, and everyone (not really, but you know what I mean) has vehicles less than five years old....I don't think they will all be rushing out to replace them before the interest rates go down.

[IanF]

The sheeple are starting to squeal

Optimism rules - will have to be the new motto.

Marq I love that word "sheeple" the image that comes to mind is woolly lemmings.
I agree optimism rules

[Dave A]

It looks like repossessions are on the up.

Auction warehouses are full of glittering 4x4s and expensive sedans, driving the message home to the previous owners the high price to be paid for over-indebtedness.

Yes, South Africans love debt and hate saving.

Household debt reached a record high of 77.4 percent of disposable income in the third quarter of last year, up from 49.8 percent in the fourth quarter of 2002.

Total consumer debt was at R839 billion, although most of this consisted of bonds and vehicle finance, said Gabriel Davel, the chief executive of the National Credit Regulator (NCR).

He said consumer debt had increased by 134 percent over the four years to 2007.

Car repossessions have risen by up to 20 percent year on year. But losing your 4x4 is nothing compared with the crunch when your home is repossessed. Remax has predicted that up to 17 percent of South Africans could lose their homes this year.
full story from Business Report here

[Chatmaster]

I am currently doing a business plan for a friend who heads a large investment company. They buy property before it is repossessed. I was shocked when I saw the data on SAPTG. There is allot of people in serious trouble with judgements left right and centre and it seems to be increasing. Well my friend is smiling, they get property at way below market value...

[Dave A]

New vehicle sales still drifting lower.

Car makers Volkswagen and Nissan will halt production at their assembly plants for several days because of the slump in new vehicles sales, while another motor manufacturer did not rule out similar action.

Bill Stephens, a Volkswagen South Africa spokesperson, confirmed last week that the company would shut production at its plant in Uitenhage for eight days between last Thursday and May 2.

Stephens said employees would be required to take five days' annual leave and to be on unpaid leave for three more days during this period.

The decision was an attempt to adjust the company's production schedule to subdued demand, following a 16 percent decline in new vehicle sales this year.

He added that Volkswagen's export business remained strong and was unaffected by the shutdown.
full story from Business Report here

At least new vehicle exports are still steady.

[Dave A]

Property market

Herschel Jawitz, CEO of Jawitz Properties, said the market would find a "fairly significant fall off" in the number of registered estate agents this year.

"It could be as much as a 15 percent to 20 percent fall off, which translates into around 10 000-15 000 fewer estate agents," said Jawitz.

He said there were about 80 000 estate agents registered with the Estate Agency Affairs Board.

He said the challenge for estate agents at the moment was less a matter of property prices and much more the volume of home sales, which had also declined by as much as 20 percent year-on-year.
full story from IOL here

I suspect in some market segments, the unit volume fall-off has been significantly higher than 20%.

Surely the latest rate increase is going to bring in more forced buyers and press prices lower? The "upside" of that scenario is that unit volume might pick up, though.