A pleasing outcome in a complex and volatile business environment


Operating environment

The six month period to 31 December 2009 showed early signs of an improving global and local economic environment. GDP in most of the world’s developed markets is beginning to slowly recover and some emerging markets, notably China, are showing robust growth.

In South Africa, the operating environment remained recessionary and only posted positive growth of 0,9% during the third quarter of 2009, followed by 3,2% in the final quarter of the year. This brought the full year change in GDP to –1,8% (vs. +3,7% in 2008). The growth appeared to be mainly driven by the manufacturing sector and government spending programmes. Otherwise, economic conditions remained challenging with real disposable income and jobs declining by 1,1% and 870 000 respectively. Inflation remained above the South African Reserve Bank’s targeted range at 6,3% on 31 December 2009.

The decline in economic activity and domestic demand prompted a further 50bps repo rate decrease in August 2009 following on the cumulative 450bps decrease during the period from December 2008 to 30 June 2009. The impact of these interest rate reductions, together with a stabilisation in house prices and a recovery in equity prices, provided some relief to consumers. However, levels of consumer indebtedness remain high and in addition some signs of stress remain evident in certain commercial and corporate segments. Whilst the reduction in interest rates has had an initial positive impact on retail bad debts, it continues to negatively impact on banking deposit margins and income earned on the capital endowments held by the groups in which we are invested.