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Quarterly Economic Review
1st Quarter 2018/2019
September 2018
Quarterly Economic Review
Enquiries can be forwarded to:
Economic Policy Development and Planning
Department of Economic Development
City of Johannesburg
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
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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
Source: SARB Quarterly Bulletin – September 2018
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
Source: SARB Quarterly Bulletin – September 2018
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
Quarterly Economic Review
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.
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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
Source: Stats SA GDP: Q2 2018– Media presentation- September 2018
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-
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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
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.
Quarterly Economic Review
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 (-
Quarterly Economic Review
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
Source: STATS SA-Quarterly Labour Force Survey, Quarter 2, 2018 - Publication-P0211
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
Source: STATS SA-Quarterly Labour Force Survey, Quarter 2, 2018 - Publication-P0211
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
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Source: STATS SA-Quarterly Labour Force Survey, Quarter 2, 2018 - Publication-P0211
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
Source: STATS SA-Quarterly Labour Force Survey, Quarter 2, 2018 - Publication-P0211
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
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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.
Quarterly Economic Review
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
Quarterly Economic Review
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
Quarterly Economic Review
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/