Nicola’s Notes: Dark clouds

The dark clouds hanging over SA’s economic hub are a perfect metaphor for the country’s economic situation, writes Nicola Mawson.

Joburg’s first Spring rain fell last night - and did so with aplomb. From late afternoon, dark clouds covered the city, promising a Summer-style thunderstorm. We weren’t disappointed.

Except the clouds also brought with them wind that was rather unusual and swept up dirt and debris, flying sand into the air and blowing trees around, and smaller items off outside tables.

It was a bit like one of those scenes in a movie just before the apocalypse hits.

Okay, so maybe I’m exaggerating a small bit. But not by much.

I couldn’t help feel that the weather yesterday afternoon was some sort of predictor for the economy.

I hope not, because it’s dark and dreary today, and cold to boot, with rain expected for the whole weekend.

As a metaphor, the weather seems to be a good one to explain the economy at this point in time. Things are dark, and windswept - what with the volatility of the rand and current trading conditions.

And the rain, instead of bringing new life - which it frankly can’t do without the sun - seems malevolent; bringing dark days that are depressing.

I hope to goodness I’m wrong, and that the rain brings new life, but all the economic indicators so far are pointing the other way.

We all know gross domestic product dropped in the second quarter, and that a subsequent drop will mean we’re in a recession.

Many consumers already think we’re in a recession, and I can’t blame them - especially when inflation is eating away at disposable income more and more, and we’re all labouring under the weight of bills that seem like a tidal wave.

Business confidence has slumped to its lowest level in more than 16 years because of subdued domestic economic performance and global financial market turmoil.

That news, out yesterday, pushed the rand to a week's low against the dollar.

Lower business confidence comes on the back of the lower Purchasing Manufacturing Index in August, which points to underlying weaknesses in the manufacturing sector.

The seasonally-adjusted Barclays PMI fell by 2.5 index points to 48.9 in August 2015.

The dip below the neutral 50-point mark suggests actual manufacturing production is likely to have contracted in August. The average PMI for the first two months of the third quarter is only just above 50 points, which suggests that manufacturing output remains under pressure after contracting in the second quarter.

So, in English, manufacturing will be down again. And will weigh on any economic growth in the third quarter.

The Barclays Africa economist I spoke with on the back of those numbers wasn’t too worried though - he reckons we have other sectors that are resilient.

I’m not so sure. Every set of results I’ve looked at recently has pointed to tough trading conditions. Those companies that managed to grow their top lines didn’t do so because of their local operations, but rather because of their exposure to other countries.

Locally, companies are battling and cost cutting - read retrenchments - is the order of the day.

Companies that are battling to grow their top line and pay debt are bound to cut costs. And companies are in pretty poor financial health, having reached the lowest point since the 2009 stock market crisis, according to Experian’s latest debt index.

So where to from here? We’re pretty much at the mercy of global markets, a sea we float upon without much ability to shift the direction of the wind.

So either we batten down the hatches and hope we ride out the swells, or we take meaningful, decisive action at government level, and quickly.

There are policy changes that can be made that would help - tax incentives spring to mind.

Government, labour and business need to work together to strengthen SA Inc’s balance sheet, but we need to move now and not get caught up in endless talk shops.

Before the rains sweep away the bedrock of our economy.

* Nicola Mawson is the online editor of Business Report. Follow her on Twitter @NicolaMawson or Business Report @busrep.

IOL