Good news is a rare commodity. When it comes to an economy exiting a severe recession, some repetition is needed before people are prepared to believe that things really are improving. But there is ample evidence that the economy is gaining momentum and recovering quicker than expected.
Looking at the big picture, real GDP growth came in far stronger than expected in the final quarter of last year, at 3,2%. This positive surprise (against consensus estimates of around 2,5%) will help to boost business and consumer confidence - ingredients essential to any economic recovery. The healthy GDP number adds to the picture of steady improvement painted by SA's leading economic indicator, which continued to climb in December.
To this should be added the recent improvement in the overall PMI manufacturing index, a reliable indicator of the health of that sector. In February, the PMI rose strongly, to 60,4 from 53,6 in January (the market was expecting only 53,8). This is the highest reading in three years and the fourth consecutive month that the index has been above the crucial 50 level. It suggests a further meaningful pickup in manufacturing activity over the coming months.
Business and consumer confidence received another shot in the arm earlier this week with reports that new passenger vehicle sales rose by a whopping 21,4% year-on-year in February. Sales in 2010 are off to a great start after three years of decline. House prices are also rising, exports have improved and the inflation outlook has brightened.
The National Energy Regulator's decision to award Eskom a 24,8% tariff increase this year (against a request for 35%) was at the low end of expectations and has therefore moderated one of the big inflation risks. This coincides with a benign January reading of 6,2% for the consumer price index - the fifth inflation number to surprise on the downside.
The market had become fixated with the pending electricity hikes and the idea that inflation was stuck at 6%. Now economists are scrambling to revise down their inflation forecasts. The odds that the Reserve Bank could cut rates later this month have shortened considerably.
SA's fiscal position suddenly also looks more credible. The higher GDP number for the fourth quarter implies that the revenue targets announced in the February budget are well within reach. Add World Cup fever to all this good news and SA's prospects certainly appear to have brightened.
The downside risks are still present. They relate to SA's susceptibility to policy change and, given its dependence on capital inflows, to maintaining investor confidence. But this "political risk", as it is sometimes called, will always be there and every country is vulnerable to it: only the reasons differ. While investors and analysts are constantly alert to signals of uncertainty and unwelcome change, they also tend to place more importance on what a government actually does. Politics is about fighting - and in the case of the ruling party, infighting - and this is understood.
That is why financial markets have drawn comfort from the 2010 budget, because it points to continued fiscal prudence. There is no evidence of a policy shift, and this continuity implies that treasury will not lose control of the purse strings. In this respect, the budget was a case of government's action plan speaking far louder than any words could have done.
SA witnesses a creeping deterioration in many spheres of life on a daily basis. Right now, the economy isn't one of them - but it certainly doesn't need unnecessary shock and confusion from the political sphere. And rating agency Standard & Poor's has retained its negative outlook on SA. It warns that if a policy shift happens, it won't be a single event. Change like this tends to come by stealth, through deteriorating fiscal performance, or higher debt or higher inflation.
Meanwhile, improved business and consumer confidence will mean more spending and investment - a virtuous circle that just a year ago seemed much further away.
