Regional eXplorer (ReX) update
Jun 2010

Introduction
IHS Global Insight presents the June 2010 update to the Regional eXplorer. Clients will be pleased to note that this version of ReX moves all of our datasets up to 2009, with forecasts reaching all the way into 2014.

In this newsletter, we take a look at some of the macroeconomic variables and forecasts taken from the latest ReX update. We also consider, briefly, the poverty situation in South Africa, drawing on research prepared for our upcoming Africa Economic Outlook Conference.

Expenditure surge unsustainable
Recent figures released by the South African Reserve Bank point to an increase in the growth of (GDE) Gross Domestic Expenditure (from an annualised 4.9% in 2009Q4 to 12.1% in 2010Q1.) This measure considers total expenditure on all final goods and services within the borders of the country, regardless of where they were produced, and therefore excludes exported but includes imported goods and services.

The main boost to consumer spending came from increased outlays on durable goods; primarily spending on cars, recreational and entertainment goods and furniture and household appliances. Likewise, spending on semi-durable goods jumped from a contraction of 0.6% in 2009Q4 to 28.4% in the 2010Q1. Specifically, spending on clothing and footwear, and semi-durable recreational entertainment goods boosted this sub-sector. Furthermore, the spending on non-durables increased by 9.5% following a contraction of 0.7% in the previous quarter.

This pattern of spending would appear indicative of pre-World Cup preparations as anecdotal evidence saw a surge in flat-screen television sets and furniture purchases for tourist accommodations. Furthermore, if the low level of credit uptake in the economy is considered, it seems that a good portion of the population is relatively cash-flush and thus able to increase spending on semi-durables.

However, the boost in consumer spending is not underscored by recent confidence levels, credit figures, and retail sales, implying that the growth is unsustainable. Spending in the second half of the year is therefore expected to slow down. Nonetheless, the early boost in spending will push GDP growth to above 3% for 2010 full year.

The first chart provides a look into the IHS Global Insight forecasts on GDP growth per province and includes the expected national GDP growth. Following the chart; Gauteng, the Western Cape and Kwazulu-Natal are expected to continue growing above the national average – which is typical of these large urban areas.

The national economy will grow by 3.5% annualised over the period 2009 to 2012, with Gauteng, the Western Cape and Kwazulu-Natal expected to take the lead in growth across the provinces. Whilst our urban provinces continue to outperform the national average, South Africa’s rural Free State and Northern Cape lag the rest of the country.

As noted in our previous newsletter, GDP growth in the urban provinces is dominated by tertiary sector services whilst, expectedly, the rural provinces are still fairly dependent upon primary sector growth – with many local municipalities still leaning on the growth in the agricultural sector to see them out the other side of the recession.

Income poverty lingers
At our annual Africa Economic Outlook Conference, IHS Global Insight will be presenting research into the current and future outcomes surrounding poverty in South Africa. Whilst our economic outlook conference will tackle the subject in more depth, we focus briefly on the historic relationship between unemployment and poverty.

The following chart depicts poverty and unemployment in South Africa over time, using the minimum living level as the benchmark for the poverty line.

Inequality has also remained stagnant over the period, as depicted in the following set of Lorenz curves, as measured in 1996 and 2009. The area between the diagonal and the Lorenz curve depicts total inequality. As the inequality increases, the Lorenz curve will move outward. At the very least, we can see that inequality has not improved, and at worst, at appears to have even deteriorated since 1996.

Although we are focussing on a very narrow definition of poverty (income only) alternative views with differing poverty lines and definitions give us a very similar picture and trend. We are able to conclude that

(a)    The South African economic experience since 1996 has not been sufficient to alleviate poverty, or inequality, to any meaningful extent.

(b)    Despite large government interventions, unemployment and poverty remain highly interlinked, with all indications that this will not change in the short, medium or long term.

To conclude, the employment situation needs to be improved. However, it needs to be improved to such an extent that only long term, substantial, change to the microeconomic structure of the economy will be enough to see a change in poverty. We discuss this topic further at our Africa Economic Outlook conference on July 20^th of this year.

List of additions, improvements, revisions and fixes
The following changes have been made to the ReX data in this release.

• All datasets updated to 2009, excluding the weather module as noted below
• The weather module has not been updated. The South African Weather service recently placed an inexplicably high increase on the raw data. We are currently exploring alternative means of updating this module.  If you rely heavily on this data, don’t hesitate to contact us.
• Forecasts include the latest output from the IHS Global Insight macroeconomic model. The previous forecasts showed high growth in the primary sectors for 2010, whereas the latest forecasts spread the growth more equally amongst the different sectors of the economy. 
• A number of minor changes have been made to the model, all of which we believe will lead to improved overall accuracy. Such changes were made across the board, but specifically with regard to the poverty, income and expenditure and economic models. There may be revisions for a number of historic datasets in these modules.