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Standard Bank Group
The SA Daily 05 September 2019

Crawling out of contraction

  • SA financial conditions having eased somewhat in July should support consumer spending. The Standard Bank Financial Conditions Index (FCI) eased to -0.06 in July, gradually retracing out of negative territory; it had slid to -0.30 in June. The FCI has averaged -0.24 thus far in 2019, from -0.54 in 2018.
  • The FCI flags near-term economic activity. In 2009, when the economy shrank by 1.5% during the global crisis, the FCI had measured -1.8 the year before (2008), and -2.1 in the recession year (2009).
  • Encouragingly, the FCI at current levels does not flag a contraction in real GDP for this year; however, the risks to the SA economy are still entrenched to the downside due to the mostly still lagging local reforms and the global trade war.
  • We expect SA financial conditions to ease further in 2H19 and 2020 after the SARB’s 25 bps rate cut in July and with inflation still benign. Continued reasonable growth in credit uptake and our anticipated rand recovery should also support conditions.
  • Globally, the ongoing monetary policy easing in advanced economies should boost financial conditions — but spill-over to SA financial conditions will likely be impinged by the global trade war which has made investors shy of EM assets. The state of global financial conditions matters for SA; a 1 percentage point increase in foreign financial conditions increases SA financial conditions by a 0.47 percentage point.

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