The South African economy is struggling and there are few signs that the situation will improve in the immediate future, BoE Private Clients said on Wednesday.

"If I was a weather forecaster, I would say big dark clouds are hanging over the economy, while strong winds and freezing temperatures lambaste individual provinces," said Mike Schüssler, economist and architect of the barometer project published monthly by BoE Private Clients.

However, BoE Private Clients noted in a statement that the JSE All Share Index delivered 10.33 percent on a total return basis for May, and was finally in positive territory year-to-date.

This indicated a possible improvement in conditions in the second half of the year, it said.

The provincial barometers showed that the sharp downward trend of the past few months continued in April and provided some perspective of the magnitude of the recession.

E Cape in much deeper trouble

The barometers, which measured business activity levels in Gauteng, the Western Cape, the Eastern Cape and the Free State, also highlighted the fact that the economy of the Eastern Cape was in much deeper trouble than in the other provinces.

Economic activity in the private sector economy of Gauteng was 14.6 percent lower than in April last year.

The Western Cape (-7.4 percent), Free State (-7.8 percent) and Eastern Cape (-17.1 percent) also continued their downward journey.

Gauteng and the Eastern Cape were the hardest hit owing to their respective exposure to the struggling vehicle manufacturing industry.

"Although there are no signs that the economy will lift its head in the near future, I think that activity levels would hit an all time low in April and May," Schüssler said.

"The barometers for April already show this and I think May would see a similar trend."

A slow recovery process to start

Schüssler expected the environment might bottom out in June, after which a slow recovery process would start.

A sectoral analysis of the barometers showed that virtually all economic sectors had a dismal April, although the climate in the manufacturing, financial, real estate and business services sectors could not really be much worse.

The financial sector saw a massive decline in activity levels in April.

In Gauteng, the decline was 21.1 percent, it was 25.9 percent in the Eastern Cape, 12.7 percent in the Free State and 11.5 percent in the Western Cape.

"The decline is the result of the crisis in the residential property market, where between 40 percent and 50 percent fewer properties were sold.

"This sector is really dead," said Schüssler.

He added the manufacturing sector was in a similar precarious position.

Activity levels in Gauteng dipped by 14.8 percent, while the Eastern Cape slipped by 14.6 percent.

Downturn in the automotive sector

The Free State (-6.4 percent) and Western Cape (-10.1 percent) also saw activity levels drop, but not as much as in the other two provinces.

"Manufacturing in Gauteng and the Eastern Cape suffer as a result of the downturn in the automotive manufacturing sector.

"This downward trend could be a prolonged one as the outlook for the sector remains bleak," Schüssler noted.

Despite this grim picture, there were some signs that the pressure on consumers and businesses was slowly abating, he said.

"Stress factors, such as the interest rates and inflation, are declining and this will alleviate the pressure on the economy.

Gauteng residents have most debt

"I expect that Gauteng will benefit the most from this as the residents of this province have the most debt. "

He said a decline in interest rates and inflation should lead to an increase in consumer spending, which would inject life into the province's economy.

At the same time, the South African equity market showed positive gains during May, in line with emerging market generally, and supported the possibility of an economic recovery later in the year.

According to Daryll Owen, chief investment officer at BoE Private Clients, the market had had a good run but still seemed to be looking past current recessionary conditions to the expected improved conditions in the second half of 2009 and beyond.

"One should look for a conversion of positive sentiment indicators to actual spending, both locally and abroad, for confirmation that the economy has bottomed and is recovering," Owen said.

Sapa