The performance of an economy Economic indicators:  inflation rate  foreign trade  employment  productivity  interest rates  money supply Social indicators:  demographics  health and nutrition  education  services  housing and urbanisation International comparisons

Macroeconomic indicators can show: changes within a country comparisons with other countries

Economic indicators: trends used to predict future of economy. Barometric approach: uses leading economic indicators to predict the future path of the economy.

SARB use over 200 economic time series to predict the turning points of SA business. Leading indicators include… change in new cars sold change in building plans approved change in new companies registered.

Inflation rises from 3% to 5%. Describe what has happened… When looking at macroeconomic data, have the effects of inflation been removed? Origin of stats???

CPI inflation: measures the change in the price level of a basket of consumer goods and services.

Measured using fixed basket of consumer goods and services - representative of households’ expenditure Weighted based on consumers’ expenditure patterns.

CPI calculated using index Index number: a figure reflecting price or quantity compared with a standard or base value. Complete WS on index numbers

Producer Price Index: calculates changes in price of manufactured goods as they leave factories, not when they are sold to consumers. PPI measures cost of production not cost of living. Early indicator for changes in CPI

Balance of payments Foreign trade stimulates growth and development. Balance of payments: summary of all the transactions between South African economic units and the economic units in the rest of the world. Consists of two major accounts… current account: includes all goods and services exported to and imported from the foreign sector financial account: which includes all financial flows from and into the country.

Consists of two major accounts… Current account: goods/services exported to and imported from foreign sector.  positive balance (surplus) - exports > imports  negative balance (deficit) – imports > exports Deficit requires inflow of foreign capital to pay for the excess of imports over exports - shown in the financial account. Financial account: includes all financial flows from and into the country.

Type of foreign capital is important. FDI (buying land, buildings, production equipment) = LT investmentVS Acquiring financial assets (bonds & shares) = ST investment

Merchandise exports: Merchandise exports: (exports - imports of goods) indicates employment opportunities. Balance on current account: Balance on current account: total exports – total imports. Balance on financial account: Balance on financial account: shows net inflow/outflow of foreign capital.

Find…  Current CPI  Current PPI

Exchange rate: the price of one currency in terms of another

When the Rand increases in value… Imports cheaper Exports more expensive Tourism suffers Investment in SA more expensive

When the Rand decreases in value… Imports more expensive Exports cheaper Tourism encouraged Investment in SA encouraged

Find…  Current R - $  Current R – Euro  Current R - Pound

Full/high levels of employment = strong economy + levels of growth & development. High levels of unemployment sign of…  lack of domestic and foreign direct investments  low levels of labour productivity  rigid labour laws  high levels of poverty Accuracy due to informal sector?

Underemployment: when someone takes a position that requires less skill than their ability.

Productivity: relationship between the quantity of inputs and the quantity of outputs. Low productivity can mean that…  Workers poorly trained/educated  Exports more expensive – makes trade difficult  Leads to inflation as wage rises > productivity gains

Labour productivity: output per worker in a particular period of time. Measured by: Real GDP ÷ number of workers employed Rising labour productivity → economic growth → improved living standards. However… SA has poor labour skills & labour productivity. Deceleration in productivity growth + acceleration in nominal remuneration growth per worker = ↑ in nominal unit labour cost.

When real wages increase > increase in labour productivity = inflationary pressures

Interest rates: the price that borrowers pay when they borrow money, and the income that investors receive when they save or invest money. Repurchase rate (repo rate): rates at which the SARB lends money to commercial banks. (July 2015 – 6.00%) Adjustments made by basis points (1% = 100 basis points). ↑ from 5,5% to 6,0% = ↑ by 50 basis points

Money supply is an important indicator because… ↑ in money supply → ↑ in inflation → higher IR’s ↓ in money supply indicate period of lower growth → lower IR’s

South Africa vs other Brics countries South Africa: An Economy Under Threat?

Social indicators: measures to evaluate the performance of a country in terms of the social well-being of its citizens. Stats collected by… The Human Development Report published by the United Nations Development Programme (UNDP) The World Bank’s World Development Report - related to the Millennium Development Goals

Important social indicators…  demographics  health and nutrition  education  services  housing and urbanisation

the number and characteristics of a population. Demographics: the number and characteristics of a population. Characteristics such as… size, race, age, sex, income, geographic distribution, language, education, occupation, religion, birth rate, fertility rate, life expectancy at birth, infant mortality rate, death rate.

Used to…. plan infrastructure indicate size/characteristics of target markets show available labour force

Indicates… Education spending req. Current and future labour force Tax payers

The ratio of total live births to total population Crude birth rate: The ratio of total live births to total population

Affects the country’s level of… Literacy Productivity Competitiveness National wealth

Living standards affected by access to services. Provided by government & private sector

Housing subsidy given to residents earning R3 500/month. About 10% population receive this subsidy.