Quarterly Economic Review - Johannesburg Developm… · Quarterly economic review documents are intended to provide regular insights into the W detailion torld economic The Quarterly

Quarterly Economic Review

1st Quarter 2018/2019

September 2018


Enquiries can be forwarded to:

Economic Policy Development and Planning

Department of Economic Development

City of Johannesburg

[email protected]

Quarterly economic review documents are intended to provide regular insights into the W detailion torld economic

The Quarterly Economic Review is intended to provide regular insights into the performance of the world economy and the state of the local economy. This edition focuses on economic performance highlights for the second quarter of 2018 (April to June 2018).

Table 1: Real GDP (percentage change from previous year) Data Source: International Monetary fund (IMF) World Economic Outlook-Update, July 2018.

1. Global Economic Developments1 In July 2018, the International monetary Fund (IMF)

released its World Economic Outlook (WEO) update which

largely affirmed its April projections of global growth.

Global output is projected to grow by 3.6% in 2018 and

2019 respectively but the IMF warned the expansion is

becoming less even, and downside risks to the outlook are

mounting. The IMF kept its South African GDP growth

forecast at 1.5% in 2018 and 1.7% in 2019 – but this is

likely to be revised downwards in the next IMF global

economic forecast. Analysing Table 1 above it is evident

that significant downward revisions were made to growth

in Latin American and the Caribbean as well the Advanced

Economies – the latter includes South Africa’s major

trading partners. Growth in the Euro area economy is

projected to slow gradually from 2.4 percent in 2017 to

2.2 percent in 2018 and to 1.9 percent in 2019 (a

downward revision of 0.2 percentage points for 2018 and

1 International Monetary Fund (IMF) World Economic Outlook (WEO) Update July 2018; and, South African Reserve Bank September 2018 Quarterly Bulletin

0.1 percentage point for 2019 when compared with the

April forecast).

Germany, South Africa’s second biggest trading partner

had its growth projection revised downwards by 0.3 basis

points to 2.2 per cent for 2018 but revised upwards by 0.1

basis points to 2.1 per cent for 2019. The IMF projects

growth in the United Kingdom to decelerate even further

to 1.4 per cent in 2018 - revised downwards by 0.2

percentage points, as Brexit effects begin to filter into the

economy. The UK growth rate should then average 1.5 per

cent in 2019. In the United States (US), near-term

momentum in the economy is expected to strengthen

temporarily given the government’s fiscal stimulus and

continued strong private demand. China, South Africa’s

major trading partner is expected to grow by 6.6 per cent

in 2018 but decelerate slightly to 6.4 per cent in 2019, no

change from the April 2018 estimate.

The slowdown in growth in the Euro Area will affect South

Africa’s export sector but continued growth in China and

the US will offer some mitigation. An increasing risk to

global trade however is the Trump administration’s

selective levying of import tariffs on some products and

countries. South Africa’s trade with the US is expected to

be affected. Higher oil prices should benefit oil producers

and consequently benefit South African exports to such

countries – especially in the African region.

Johannesburg’s export sectors – both goods and services,

will benefit from trade-supportive international

developments.

Figure 1: Real global output growth and contributions from advanced and emerging market economies-Q2 2018


Source: SARB Quarterly Bulletin – September 2018

Focusing on recent global economic developments as

reported in the South African Reserve Bank September

2018 Quarterly Bulletin, Figure 1 shows that global

economic growth measured quarter to quarter

decelerated marginally to 4.0% in the second quarter of

2018, from 4.3% in the first quarter. This was due to the

slowdown in emerging markets which offset a rebound in

the advanced economies. Global export trade volumes

were sluggish in the second quarter 2018. World exports

contracted in April and May followed by a rebound in

June. The latter recovery was led by growth in export

volumes in advanced economies which increased sharply

by 4.5% in June, mainly due to higher US exports.

Table 2: Real output growth in selected advanced

economies


As evident in Table 2, growth in advanced economies

accelerated to 2.8% in Q2:2018 from a revised 1.8% in

Q1:2018. In the United States (US), real output growth

was a solid 4.2 % in Q2:2018 from a 2.2% in Q1:2018. A

key contributory factor was fiscal stimulus, which

supported growth in consumption expenditure. This was

the US strongest growth since the third quarter of 2014.

In addition, the strong rebound was also driven by

business investment, in part due to the fiscal stimulus

from tax cuts introduced late in 2017.

In Japan following a contraction of 0.9% (-0.9%) in the first

quarter of 2018, real GDP expanded by 3.0% in the

second quarter, as robust consumer spending and strong

fixed investment lifted the economy.

In the Euro area output growth decelerated in the first

quarter of 2018 and remained at the lower level in the

second quarter. Quarter to quarter real output growth of

1.5% was recorded in the second quarter 2018.

Contributors to the deceleration included temporary

seasonal factors - unusually cold weather and strike-

related disruptions in some countries. In the United

Kingdom (UK) economic growth rebounded to 1.5% in the

second quarter of 2018 – after a deceleration to just 0.9%

in the first quarter. The improvement in the second

quarter was due to increased gross capital formation, and

increases in inventories.

Table 3: Real output growth in selected emerging

economies


Emerging economy quarter-to-quarter growth as shown

in Table 3 decelerated by 1.1 percentage points to 5.1% in

Q2:2018, from 5.1% in the previous quarter. Output

growth in emerging Asia decelerated to 6.5% quarter-on-

quarter in the second quarter of 2018 from a high of 7.7%

in the first quarter of 2018. India experienced

deceleration from the exceptional growth acceleration of

the first quarter, still recording 7.6% growth in Q2:2018.

In China, real GDP expanded at a slower pace of 6.4% in

the second quarter after the 7.2% growth of the first

quarter. Contributory factors to the deceleration were the

Chinese government’s efforts to rein in credit growth

which impacted on fixed investment in the second

quarter. Noteworthy is the fact that real output growth in

Indonesia accelerated to 6.2% in the second quarter – the

fastest pace in almost eight years. Robust consumption

expenditure played a role in this performance.

The oil price has risen strongly internationally. The price

of Brent Crude increased by more than 60% from June

2017 to almost US$77 per barrel in May 2018. Supply

disruptions and geopolitical tensions have continued to

support higher prices. Oil prices increased to around

US$80 per barrel in mid-September due to slower growth

in US shale production, the prospect of renewed sanctions

against Iran and concerns about a hurricane approaching


the US. The Organization of Petroleum Exporting

Countries (OPEC) and non-OPEC producers have however

agreed to raise oil production by about one million barrels

per day.

The second quarter slowdown in economic growth in

South Africa’s key advanced economy trading partners-

especially the Euro Area is a concern for the country but

some improvement is anticipated in subsequent quarters.

More worrying from South Africa’s perspective is the high

oil price which leads to increased costs and the potential

for inflation in the economy. This could affect the interest

rate and economic growth outlook for the economy.

Despite uncertainties, global economic growth, and

investment and trade improvements are still expected to

filter through to the internationally exposed tradable

goods and services sectors of the Johannesburg economy.

The trade, tourism and manufacturing sectors are likely to

benefit. Better international trade conditions would

represent improved opportunities for the city economy.

To take advantage of this the City administration should

support trade initiatives and the strengthening of

Johannesburg’s economic competitiveness.

2. Credit rating agencies2 on South African

Sovereign Debt and Implications for

Municipalities

Moody’s is the only ratings agency still holding South

Africa above ‘junk status’, having affirmed the country’s

rating at one notch above sub-investment grade in March

2018. According to Moody’s, two ratings strengths for

South Africa are that its government debt had a long

maturity and that relatively little of the debt was foreign-

currency denominated.

However in September 2018, Moody’s published an

updated report on their view of the state of South Africa’s

economy. They highlighted that the negative Statistics

South Africa GDP data for Q2 2018 released early in the

month, indicated that the country’s economic

performance was weaker than expected. The agency sees

continuation of such performance as credit rating-

2 “Government of South Africa: Economy's slide into recession increases policy challenges”- Moody’s September 2018 note.

negative for the country. Weak economic growth worsens

the country’s fiscal problems. Moody’s cut South Africa’s

growth forecast, from 1.5% expected at the start of the

year, to just 0.7%. This was after some international banks

had just done the same - Goldman Sachs cut its 2018 GDP

growth forecast for South Africa from 2.0% to 0.8%, with

Merrill Lynch cutting theirs from 1.6% to 0.9%. The trend

in downwards revision of the country’s economic growth

outlook was also evident in the SA Reserve Bank revision

of South Africa’s 2018 GDP growth expectations to 1.2%

from 1.7%. Moody’s also raised concerns that the weak

national growth performance posed difficult monetary

policy questions to the central bank. More specifically,

with an acceleration in inflation threatening because of

rising oil prices and rand depreciation, it would be difficult

to justify the lowering of interest rates to support the

economy.

Moody’s noted that recovery in South Africa’s economic

growth performance is likely to be slow. Such a

constrained economic recovery would be manifested to

varying degrees across the provinces and municipalities of

the country. Such conditions demand a strategy response

from local government to both work on growth

supporting interventions and manage the financial

consequences for municipalities of a slow recovery of

economic growth momentum.

3. South African Economic Performance

Statistics South Africa has released new data on the

growth performance of the economy in the first half of the

year. South Africa's real gross domestic product (GDP)

measured by production, quarter-to-quarter change,

contracted by 0.7% (-0.7%) in the second quarter of 2018

– see Figure 1. This comes after a revised contraction of

2.6% (-2.6%) quarter-to-quarter in the first quarter of

2018. Two consecutive quarters of quarter-on-quarter

contraction meets the technical definition of a recession.

On a year-on-year basis however, Q2 2018 GDP was

nevertheless 0.4% higher than in Q2 2017.


Figure 1: South Africa GDP Growth in Real Gross

Domestic product

Source: Stats SA GDP: Q2 2018– Media presentation- September 2018

In Figure 2 the sector performance contributing to the net

second quarter contraction in the national economy can

be seen. Agriculture, transport and trade were the main

contributors to the slowdown, with government and

manufacturing industries also recording negative growth

rates. Five industries contributed to the decline in the

quarter which is the same number of industries that grew

and contributed positively to growth.

Figure 2: Industry (%) growth in Q2: 2018 – contributions

on the right axis


More specifically, after recording a contraction of 24.2%

(-24.2%) in the first quarter of 2018, the agriculture,

forestry and fishing sector contracted further in Q2 2018

- by 29.2% (-29.2%), and exerted a 0.8 (-0.8) of a

percentage point drag on the GDP growth rate. The

decrease was mainly due to a drought-induced drop in the

production of field crops and horticultural products in the

south of the country. This was off a high base of record

summer grain harvests in the centre and north of the

country in 2017. The Bureau of Economic Research (BER)

in Stellenbosch noted that the growth performance

“reflects the impact of the severe drought in the Western

Cape, as well as delayed harvesting of summer crops,

including maize. Measured quarter-to-quarter, there is

likely to be some recovery from the third quarter

onwards.”

Output of the transport, storage and communication

sector decreased by 4.9% (-4.9%), and exerted a (-0.4) of

a percentage point drag on the GDP growth rate. This

reflected decreases in activity in land transport, air

transport and transport support services. Output of the

trade, catering and accommodation sector also decreased

by 1.9% (-1.9%), exerting a 0.3% (-0.3) of a percentage

point drag on the GDP growth rate. Contributing to this

performance were decreased activity levels in retail and

motor trade. The manufacturing sector contracted by

0.3% (-0.3%) in the second quarter with the majority of its

ten constituent manufacturing divisions reporting

negative growth rates. The largest contributors to the

decrease were in the motor vehicle, parts and accessories

and the furniture and ‘other’ manufacturing industries.

However, five industries, saw an increase in economic

activity in the second quarter 2018. The output in the

mining and quarrying sector recovered somewhat after

two consecutive quarters of contraction, expanding by

4.9% in the second quarter. This contributed 0.4 of a

percentage point to the quarters GDP growth.

Contributing to the increase was higher production in

mining of ‘other’ metal ores - predominantly platinum

group metals, copper and nickel. Output of the finance,

real estate and business services sector rose by 1.9% in

the second quarter, contributing 0.4 percentage points to

the GDP growth rate. Contributory factors included

increased activity in financial intermediation, insurance

and real estate services. Finally, output of the

construction (contractors) industry increased by 2.3%,

with increases reported for non-residential buildings and

civil construction works activities.

As illustrated in Figure 3, the aggregated primary sector

declined by (-4.6%) quarter on quarter owing to the strong

decline in output of the agriculture, forestry and fishing

sector. Figure 3 also shows how volatile the quarter-to-


quarter growth rate of the primary sector tends to be. On

an aggregate basis the output of the secondary sector also

decreased marginally by (-0.6%) on a quarter-to-quarter

seasonally adjusted basis with the largest drag coming

from manufacturing; whilst electricity consumed and

distributed increased and non-residential buildings and

construction works activities increased. Output growth of

the tertiary sector was marginally positive at 0.5% with

finance and personal services having positive growth

rates.

Figure 3: Growth in various sectors of the economy - Q2

2018 Quarter-on-Quarter seasonally adjusted and annualised


Source: Stats SA GDP: Q2 2018– Media presentation- September

2018

Assessing the performance of the economy from the

expenditure side - Figure 4 - shows that expenditure on

Gross Domestic Product - GDP(E) decelerated to (-0.9%)

quarter-on-quarter in the second quarter of 2018,

following a steep revised decrease of 2.6% (-2.6%) in the

first quarter of 2018. This was a second consecutive

quarter of contraction in GDP(E).

Figure 4 – Growth in expenditure on GDP (E) - % Quarter-on-Quarter seasonally adjusted and annualised

Source: Stats SA GDP publication- P04411, Q2:2018

Figure 5 shows the contributors to the contraction in the

second quarter of 2018: The largest drag came from

Inventories removing 2.9 (-2.9) percentage points from

the GDP(E) growth rate. There was a R14.2 billion

drawdown of inventories with large decreases reported

for the manufacturing and mining and quarrying sectors.

Imports which increased by 3.1% also exerted a drag on–

of 0.9 (-0.9) percentage points on the GDP(E) growth rate.

Household final consumption expenditure (HFCE),

contracted by 1.3% (-1.3%) in the second quarter of 2018,

exerting a drag of 0.8 (-0.8) of a percentage point on

GDP(E) growth. This was the first quarter-on-quarter

decrease since the first quarter of 2016. The main

contributors to negative growth in HFCE were

expenditures on transport, food and non-alcoholic

beverages, clothing and footwear and recreation and

culture. Gross fixed capital formation fell by 0.5% (-0.5%)

quarter on quarter exerting a -0.1 percentage point drag

on the GDP(E) real growth rate. The main contributors to

the decline were lower investment in machinery and

other equipment, transport equipment and residential

buildings.


Figure 5 – Contributions to growth in expenditure on

GDP, Q1 2018 (% points) Quarter-on-quarter, seasonally adjusted and annualised

Source: Stats SA GDP publication- P04411, Q2:2018

On the positive side expenditure categories which grew

quarter-on-quarter in real terms in the second quarter

were exports of goods and services were up 13.7%,

contributing 3.7 percentage points to total growth. This

was largely the result of increased trade in precious

metals, mineral products and vegetable products. Finally,

Government final consumption expenditure (GFCE)

increased by 0.7% largely the result of an increase in

purchases of goods and services.

Even though aggregate GDP (E) quarter-on-quarter was

down, the current quarter contraction was less

pronounced than the first quarter. It is also encouraging

that real economic growth year-on-year remained

positive. The biggest concern in the quarter-to-quarter

performance was the decline in household final

consumption expenditure which shows that households

are under severe strain. Also of concern is the continued

decline in gross fixed capital formation, driven mainly by

a slowdown in private investment activity. From a city

perspective it is important that COJ economic

development initiatives support investment in the

expansion of the manufacturing and services sectors -

where substantial potential for value chain development

and building regional and global trade linkages exists.

4. National and Metro Labour Market Performance

According to the Quarterly Labour Force Survey for Q2

2018, as released by Stats SA - see (Table A) below, South

Africa’s official unemployment rate was 27.2% in the

second quarter of 2018. This is a 0.6 percentage point

increase on the first quarter 2018. The expanded

definition of unemployment which includes discouraged

workers and people not economically active indicates an

Q2 2018 unemployment rate of 37.2% for South Africa.

This is 0.5 percentage points higher than the previous

quarter. The number of discouraged workers nationally,

increased by 77 000 from 2 787 000 in Q1 2018 to 2 864

000 in Q2 2018.

In the second quarter 2018, the working-age population

grew by 154 000 or 0.4 per cent on the previous quarter

while the labour force increased by 12 000 persons on the

same basis. The working-age population comprised 16.28

million employed, 6.08 million unemployed and 15.46

million people classified as not economically active. The

Labour force participation rate of the working-age

population stood at 59.1% in the second quarter, down by

0.2 percentage points. The labour absorption rate for the

quarter stood at 43.1% (number of employed as a ratio of

the population). Both metrics deteriorated on the

Q1:2018 performance, and of concern, on the previous

year.

Table A: Key Labour Market indicators

Source: STATS SA-Quarterly Labour Force Survey, Quarter 2, 2018 - Publication-P0211

The table also indicates employment levels decreased by

90 000 (-90 000) or (-0.5%) quarter-on-quarter, while

year-on-year employment increased by 188 000 people or

1.2%. Employment in the second quarter only increased

in Private households. Employment in Informal sector

(non-agricultural) dropped by 73 000 (-73 000) on the

second quarter of 2018. Employment losses of 35 000 (-


35 000) were also recorded for the Formal sector (non-

agricultural) and the Agriculture sector of 3 000 (-3 000)

when compared with the previous quarter. Encouragingly

all sectors reflected increases in employment year-on-

year.

The recent composition and changes in employment on

an industry basis for Q2: 2018 are indicated Table B. On a

quarter–to-quarter basis the sectors recording the most

employment loses in Q2 2018 were Manufacturing which

accounted for 108 000 (-108 000) jobs lost, followed by

Community and social services 96 000 (-96 000) and Trade

58 000 (-58 000). Sectors which recorded employment

gains in Q2 2018 compared with the first quarter 2018

were Transport 54 000, Construction 45 000, Mining 38

000, Private households 22 000 and Utilities 18 000.

Compared to a year ago i.e. Q2: 2017, a net employment

gain for the country of 188 000 jobs was recorded in Q2:

2018. This was largely driven by Community and social

services 132 000, Construction 80 000 and Transport 60

000. However, evident in the table is the fact that

Manufacturing (-55 000), Trade (-46 000), and Private

households (-15 000) had fewer jobs than a year ago.

Table B: Employment by Industry


The relative employment performance by South Africa’s

provinces in the second quarter of 2018, is explored in

Table C. When employment numbers in Q2: 2018 are

compared with those of Q1: 2018 it is evident there were

job losses in six of the nine provinces. The largest quarter

to quarter employment losses were recorded in Western

Cape 50 000 (-50 000), Free State 26 000 (-26 000), North

West 15 000 (-15 000) and Gauteng (-14 000), while

Mpumalanga 15 000, Eastern Cape 5 000 and KwaZulu-

Natal 3 000 recorded employment gains in the same

period.

On a year-on-year comparative basis - compared to Q2:

2017, employment increased in six of the nine provinces,

with increases in six of the nine provinces. The Western

Cape recorded the largest increase of 77 000 jobs,

followed by Limpopo 47 000 and KwaZulu-Natal 36 000.

During the same period, employment losses were

recorded in the Eastern Cape 13 000 (-13 000) and North

West 1000 (-1 000) whilst employment levels in

Mpumalanga remained unchanged.

Table C: Employment by Province


On a metropolitan municipality (see Table D) level, Q2

2018 quarter–to-quarter employment gains took place in

six metros. The City of Johannesburg had the biggest

quarter-to-quarter employment gain of 19 000 followed

by eThekwini 17 000 and City of Cape Town 15 000.

Employment losses were experienced in Ekurhuleni 40

000 (-40 000), and Tshwane 1 000 (-1 000).

Table D: Employment by province and municipality



Employment gains on levels of a year ago were observed

in five metropolitan municipalities, with the three largest

an increase in City of Johannesburg of 86 000, followed by

the City of Cape Town 74 000, and eThekwini 38 000.

Compared to the same period last year, employment

losses were recorded in three metropolitan

municipalities, with the biggest decreases in Tshwane and

Ekurhuleni both 46 000 (-46 000) lower, followed by

Buffalo City 8 000 (-8 000).

The City of Johannesburg continues as a key national

employment creator. The City also has the second-highest

metropolitan labour absorption rate in the country,

namely, 53.5% of the working age population. Cape Town

ranks top on this metric with a 55.4% labour absorption

rate.

In Table E, the Q2:2018 official unemployment rate for

South Africa, Gauteng Province and the Gauteng Metros

are compared. South Africa’s official unemployment rate

for Q2 2018 was 27.2%. It is evident that in Q2:2018

Gauteng’s unemployment rate stood at 29.7%. In the

current quarter all the Gauteng metros registered

unemployment rates above the national data.

For the City of Johannesburg the official unemployment

rate in Q2 2018 was 28.5 per cent – down 0.3 (-0.3)

percentage points from the previous quarter but still

higher than the national average. A significant positive for

Johannesburg is that it is when comparing the Q2 2018

unemployment rate with that of a year ago it has dropped

(improved) by 1.6 percentage points.

Table E: Unemployment rate by metropolitan

municipality


In conclusion, it is important to note that quarterly

employment data for metros is volatile quarter-to-

quarter, often the result of seasonal work. It is

encouraging therefore to note that employment in

Johannesburg grew in Q2 2018 both on a quarter-to-

quarter basis and annually. Also noteworthy from the Q2

survey is the fact that in Johannesburg provided some

12.4% of total national employment, and some 39.9% of

Gauteng’s jobs. The large contribution by the city to both

national and provincial employment underscores

Johannesburg’s role as a job creator and economic driver.

5. Inflation and interest rates

July 2018 data from the Stats SA Consumer Price statistical

release indicates that South Africa’s headline consumer

inflation rate accelerated to 5.1% in July 2018, up from

4.6% in June 2018. This is its highest level since September

2017. Core inflation – which excludes food, fuel and

electricity – increased from 4.2% in June 2018 to 4.5% in

July. In Table 4 below the sources of price increases and

their contribution to headline inflation measured year-on-

year are indicated. The most important of these are:

• The transport index contribution to the inflation rate

rose from 1.0 percentage point in June 2018 to 1.4

percentage points in July. The index increased by 10.0%

year-on-year.

• The housing and utilities index contribution to the

inflation rate increased from 1.0 percentage point in June

Apr-Jun 2017 Oct-Dec 2017 Jan-Mar 2018 Apr-Jun 2018

Qtr-to-qtr

change

Year-on-

year change

Qtr-to-qtr

change

Year-on-year

change

South Africa 16 100 16 171 16 378 16 288 -90 188 -0.5 1.2

Western Cape 2 403 2 492 2 530 2 480 -50 77 -2.0 3.2

Non-Metro 872 920 940 875 -65 4 -6.9 0.4

City of Cape Town 1 531 1 571 1 589 1 604 15 74 1.0 4.8

Eastern Cape 1 416 1 391 1 397 1 402 5 -13 0.4 -0.9

Non-Metro 817 812 804 799 -5 -18 -0.6 -2.2

Buffalo City 252 247 242 244 1 -8 0.5 -3.4

Nelson Mandela Bay 346 331 351 360 9 13 2.4 3.8

Free State 777 806 814 788 -26 11 -3.2 1.5

Non-Metro 531 533 555 526 -28 -5 -5.1 -0.9

Mangaung 246 273 260 262 2 16 0.7 6.5

Kwazulu-Natal 2 583 2 513 2 617 2 620 3 36 0.1 1.4

Non-Metro 1 399 1 346 1 412 1 397 -15 -2 -1.0 -0.1

eThekwini 1 184 1 167 1 205 1 222 17 38 1.4 3.2

Gauteng 5 050 4 991 5 069 5 055 -14 5 -0.3 0.1

Non-Metro 600 625 604 611 8 11 1.3 1.9

Ekurhuleni 1 259 1 222 1 253 1 213 -40 -46 -3.2 -3.7

City of Johannesburg 1 934 1 910 2 000 2 019 19 86 1.0 4.4

Tshwane 1 257 1 234 1 212 1 211 -1 -46 -0.1 -3.7

Other* 3 871 3 980 3 951 3 943 -8 72 -0.2 1.9

Per cent (%)Thousand Thousand

Province and Municipality


2018 to 1.3 percentage points in July. The index increased

by 5.2% year-on-year.

•The miscellaneous goods and services index contribution

to the inflation rate decreased from 1.0 percentage point

in June 2018 to 0.9 of a percentage point in July. The index

increased by 5.7% year-on-year.

Table 4: Contributions of CPI goods and service groups to

the annual percentage change in headline CPI

Source: Stats SA-Consumer Price Index: July 2018 - Publication (P0141)

The July surge in inflation was a result of rising transport

costs which were again the biggest driver of the inflation.

The increase was mostly due to the rand weakness, which

saw a 20.3% year-on-year jump in private transport costs,

petrol prices 25.3% higher than at the same time last year,

and a 3.3% year-on-year jump in public transport costs.

The 5.1% CPI increase remains within the SA Reserve

Bank's 3% to 6% target band, even though it began drifting

upwards from the 4.5% area where according to the SARB

statement of the Monetary Policy Committee on 19 July

2018, the central bank would prefer to see it. The MPC

decided to leave the Repo rate unchanged at 6.75 per

cent. The Prime Lending rate which is the base lending

rate by banks to their customers, therefore, stays at 10.25

per cent.

At the July meeting, the SARB statement of the Monetary

Policy Committee noted that several risks to the inflation

outlook have begun to materialise. While headline

inflation is comfortably within the inflation target band,

indications are that the country has passed the low point

of the current cycle. The SARB’s model projects an

increase in headline inflation, despite remaining within

the target band. It is however expected to peak at levels

close to the upper end of the target range as a weaker

rand and a higher oil price steepen the inflation trajectory.

The Bank however also noted that the domestic growth

outlook remains weak after two consecutive quarters of

contraction. The SARB forecasts a growth rate of 1.2% for

2018 compared with 1.7% previously. The forecast for

2019 is 1.9%, marginally higher than the previous forecast

of 1.7%, while the forecast for 2020 is unchanged at 2.0

%.

The SARB Monetary Policy Committee statement further

noted that the rand has depreciated significantly since the

previous meeting in May 2018. The rand had slipped by

7.2% against the US dollar, by 6.2% against the euro, and

by 4.9% on a trade-weighted basis. It is likely that the local

currency, along with other emerging market currencies,

will remain volatile.

Looking ahead, a weakening currency means inflation

risks are rising and posing the risk of an earlier hike in the

Repo rate than envisaged by the MPC at the July meeting.

Then the view was that because of the weak economy the

rate would remain unchanged for the rest of 2018. At that

meeting the Monetary Policy Committee noted “the

implied path of policy rates generated by the Quarterly

Projection Model has changed since the previous MPC

meeting. Whereas previously four increases of 25 basis

points each by the end of 2020 were indicated, five

increases of 25 basis points are now implied.” The SARB

also warned that oil prices pose an upside risk to the

inflation forecast. If oil prices continue to increase, this

will lead to record high prices for fuel, increasing transport

and food costs in the economy. The MPC also pointed out

that key uncertainties in the global economic

environment also remain, and the rand will remain

sensitive to changes in global interest rates and investor

sentiment towards Emerging Markets countries.

It is clear a number of the risk factors mentioned by the

MPC in the July meeting statement are now materialising

and consequently, the chances of an increase in the Repo

rate in the final months of 2018 are rising.


6. Concluding Remarks: Key Issues and the

Implications for Municipalities

A new report from the Brookings Metropolitan Policy

Program, Global Metro Monitor 2018, finds that more

than half the world’s population now lives in urban areas

and the 300 largest metropolitan economies in the world

account for nearly half of all global output. The report

focuses on metropolitan performance on two key

economic indicators: GDP per capita and employment.

The Global Metro Monitor indicates how large metro

areas are growing relative to their surrounding nations

and regions.

The 2018 Global Metro Monitor analysis found the

following:

a) Between 2014 and 2016, the 300 largest metro areas

accounted for 36% of global employment growth and 67%

of global GDP growth. Emerging economy metro areas

continued as prominent growth drivers, accounting for

80% of the 60 best-performing metropolitan areas.

b) Metro areas in China and Emerging Asia-Pacific nations

experienced the fastest GDP per capita growth while

Middle Eastern and African metro areas exhibited the

fastest employment growth. By contrast, Latin American

metro areas experienced the slowest GDP per capita and

employment growth.

c) Some 51% of the 300 metros posted higher growth

rates than their regions - in both employment and GDP

per capita. Metros in China led this category with 73% of

its largest metro areas having above average growth,

followed by Emerging Asia- Pacific 65% and the Middle

East and Africa 56%.

Large metro areas in China and Emerging Asia-Pacific

dominate the list of fastest growing economies from 2014

to 2016. Table 5 shows the top 15 highest performers on

a performance index. China, now has more than half of

the fastest growing metros in the top 15 and also houses

more than one-third of the world’s 300 largest

metropolitan areas. Dublin (Ireland), San Jose (US), and

Chengdu (China) were however the top 3 best growth

metros on the performance index in the time period

observed. The best performing metros also registered

increases in living standards as highlighted in GDP per

capita. Ranked at number 35 is the best growth

performing metro in the African region - Tshwane

(Pretoria) which had employment growth of 7.6% and

GDP per capita growth of 3.5% over the period.

Table 5: Highest performers on economic performance

index, 300 largest metropolitan economies, 2014–2016:

Source: Brookings analysis of Oxford Economics data

Conversely, in the 2018 Brookings analysis, large metro

areas in other emerging regions–Latin America, Central

Asia and Africa–exhibited some of the slowest growth in

the growth ranking – this included Johannesburg and

Cape Town rankled 282 and 284 respectively – see Table

6 below. On average the Middle East and Africa registered

2.2% employment annual growth and 0.8% GDP per

capita annual growth from 2014 to 2016. In Johannesburg

and Cape Town however GDP per capita declined and

employment growth was limited.

The Brookings study indicates that although the Middle

East and Africa are experiencing rising metropolitan

employment, it is without apparent improvement in living

standards. This suggests economic growth is not rapid

enough to keep up with the rate of urbanisation and

commensurate population rise in its cities. Additional

contributory factors include weaknesses in local

government which constrain large cities’ ability to address

the negative externalities of in-migration and economic

growth e.g. congestion and pollution. These externalities


ultimately contribute to reduce the locational

attractiveness of cities for international business and

investment.

Table 6: Lowest performers on economic performance

index, 300 largest metropolitan economies, 2014–2016:

Source: Brookings analysis of Oxford Economics data

Clearly, Johannesburg has not done well in comparative

GDP growth and job creation terms in recent years. High

levels of structural unemployment and continued in-

migration in the absence of rapid jobs growth will

perpetuate poverty and inequality. To address the

challenge, faster private sector-led economic growth is

needed in the city. Furthermore a quantum improvement

in the rate of absorption of the youth by the labour

market is required. Measures to promote these outcomes

will benefit the economy overall, enhance social cohesion

and improve future growth prospects.

References


1) IMF World economic outlook- July 2018 http://www.imf.org/en/Publications/WEO/Issues/2018/

07/02/world-economic-outlook-update-july-2018

http://www.imf.org/en/publications/cr/issues/2018/07/30/south-africa-2018-article-iv-consultation-press-release-staff-report-and-statement-by-the-46132 2) STATS SA GDP publication Q2 2018 – P0441 http://www.statssa.gov.za/?page_id=1854&PPN=P0441 http://www.statssa.gov.za/?page_id=1856&PPN=P0141

&SCH=7116

3) STATS SA-Quarterly Labour Force Survey, Quarter 2, 2018 - Publication-P0211 http://www.statssa.gov.za/?page_id=1854&PPN=P0211 4) South African Reserve Bank (SARB) Quarterly bulletin – June 2018

https://www.resbank.co.za/Publications/Detail-Item-View/Pages/Publications.aspx?sarbweb=3b6aa07d-92ab-441f-b7bf-bb7dfb1bedb4&sarblist=21b5222e-7125-4e55-bb65-56fd3333371e&sarbitem=8593 5) Credit Rating Agencies

https://www.moodys.com/

https://www.businesslive.co.za/bd/economy/2018-09-

04-goldman-sachs-revises-sa-growth-for-2018-

downwards-following-downside-surprise-in-gdp/

https://ewn.co.za/2018/09/27/moody-s-very-small-s-

africa-stimulus-to-have-little-impact

6) SARB Monetary Policy Statement publication-July 2018 https://www.resbank.co.za/Publications/Statements/Pages/MonetaryPolicyStatements.aspx https://www.businesslive.co.za/bd/economy/2018-07-19-reserve-bank-keeps-rates-on-hold-but-slashes-2018-gdp-growth-forecast/

http://www.imf.org/en/Publications/WEO/Issues/2018/07/02/world-economic-outlook-update-july-2018

http://www.imf.org/en/Publications/WEO/Issues/2018/07/02/world-economic-outlook-update-july-2018

http://www.imf.org/en/publications/cr/issues/2018/07/30/south-africa-2018-article-iv-consultation-press-release-staff-report-and-statement-by-the-46132



http://www.statssa.gov.za/?page_id=1854&PPN=P0441

http://www.statssa.gov.za/?page_id=1856&PPN=P0141&SCH=7116

http://www.statssa.gov.za/?page_id=1856&PPN=P0141&SCH=7116

http://www.statssa.gov.za/?page_id=1854&PPN=P0211

https://www.moodys.com/

https://www.businesslive.co.za/bd/economy/2018-09-04-goldman-sachs-revises-sa-growth-for-2018-downwards-following-downside-surprise-in-gdp/



https://ewn.co.za/2018/09/27/moody-s-very-small-s-africa-stimulus-to-have-little-impact

https://ewn.co.za/2018/09/27/moody-s-very-small-s-africa-stimulus-to-have-little-impact

https://www.resbank.co.za/Publications/Statements/Pages/MonetaryPolicyStatements.aspx

https://www.resbank.co.za/Publications/Statements/Pages/MonetaryPolicyStatements.aspx

https://www.businesslive.co.za/bd/economy/2018-07-19-reserve-bank-keeps-rates-on-hold-but-slashes-2018-gdp-growth-forecast/



Documents

Quarterly Economic Review - Johannesburg Developm… · Quarterly economic review documents are intended to provide regular insights into the W detailion torld economic The Quarterly