STANLIB Weekly Focus - Liberty

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Economic UpdateOur global crisis monitor remained unchanged during last week, as the global environment battledto find any good new. The US Q4 GDP figure was revised down sharply from - 3.8%q/q annualized,to -6.2%q/q, which is the biggest decline since 1982! More bad news is expected at the end of thisweek, as February job losses in the US are expected to equate to 650 000, pushing the world largesteconomy further and further into recession.Back home our Q4 GDP figure declined slightly more than expected, dropping to - 1.8%q/q.Consumer inflation came out higher than expected during January; however Producer inflation at9.2%y/y was below December‟s reading and below market consensus. Money supply and privatesector credit extension continued to slow, with credit growth expected to ease significantly furtherduring most of 2009 justifying further interest rate cuts. We recorded a shock trade deficit of R17.4billion during January, reflecting a 25% plunge in exports.This week we will see February vehicle sales along with the PMI (manufacturing) data. Bothindicators are expected to confirm an economy under pressure. (The Q4 2008 Labour Force Surveyrecorded a surprise 189 000 increase in employment). We are also expecting a further petrol pricehike of roughly 45c/l this week; however diesel users will enjoy a cut of approximately 38cl, due tothe slowing demand for international rail and ocean transport.Global<strong>STANLIB</strong> Economic Crisis Monitor - no change to the table this weekThe aim of the crisis monitor is to try and measure whether or not the unprecedented policyresponse to the current global economic crisis is working. This applies especially to the US, as itremains the key financial and global economy. We have selected 15 key indicators that reflectthree key areas of the US economy, namely Housing Activity, Credit Markets, and the RealEconomy.Unfortunately, still only 3 out of the 15 indicators selected are showing a meaningfulimprovement. The positive indicators are still the US mortgage rates, which are at historicallylow levels; the TED spread which remains below 100bps; and commodity prices, which shouldhelp to keep inflation low. All the other indicators remain a concern, especially the highlevel of inventories, the risk/volatility indicators, and the weekly jobless claims.On balance, the financial/credit/housing environment has not changed that much over the pastweek. The key US stimulus packages have all been introduced and will be implemented over8
the coming months. In the meantime, anxiety over the viability of global banks and job lossesremains extremely high.USAUS Q4 GDP performance revised substantially lower to -6.2%q/qIn Q4 2008 US GDP fell by a very significant and revised 6.2%q/q, annualised. This compareswith an initial estimate of 3.8%q/q, published a few weeks ago. This is the worst economicperformance in the US for more than 26 years.The downward revision was fairly broad-based across most sectors of the economy includinginventories, net exports, and non-durable consumer spending.The decrease in real GDP in the fourth quarter primarily reflected negative contributions fromexports, most areas of personal consumption expenditure, equipment and software, andresidential fixed investment.This was partly offset by positive contributions from consumer spending on services, privateinventory investment (almost definitely an unintentional build-up of inventories) and federalgovernment spending. Imports, which are a subtraction in the calculation of GDP, decreased. Infact the decrease in imports added an amazing 2.99 percentage points to quarterly change inGDP.Consumer spending came under significant pressure, declining by 4.3%q/q in Q4 2008. Thiswas mostly due to a decline in spending on durables goods (e.g. motor cars) and spending onnon-durables (e.g. food and clothing).Fixed investment spending also remains under enormous pressure. There was a furthersignificant decline in investment spending on equipment and software as well as residentialproperty. The overall decline in residential property activity has actually been evident since atleast the middle of 2006.In 2008 real GDP increased by 1.1% in 2008 compared with an increase of 2.0 percent in2007, and a long-term average of around 3.0%.The US National Bureau of Economic Research (NBER) recently concluded that the US economyentered a recession at the start of 2008. While some analysts question this conclusion, there isno doubt that the US economy has been gripped by a severe downturn since at least July 2008,and is now experiencing a very severe recession.While all components of the economy are very weak, the area that stands out is consumerspending given that it represents more than 70% of the US economy. A number of factors arecombining to undermine consumer activity in the US. These include extremely weak confidencelevels, rising unemployment, and nominal personal income growth that is close to zero. Huge9
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STANLIB Weekly Focus - Liberty

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