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Blog : 7 December 2016 (Our economy slowly slipping/ stepping into darkness)
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We take a look at the ever poorer performance of the South African economy. Its been treading water for years, and just cannot seem to get out of this rut it is stuck in. To make matters worse there is large scale fruitless and wastefull expenditure in government departments, unions holding the employers to ransom, government keeps increasing the tax burden on the rich, and poor economic policies and implementation therefore and a central bank that is not good at inflation forecasting (and raised rates based on these poor forecasts) all add up and contribute to this dismal display from the South African economy.
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South Africa's GDP 3 ways
It doesn't matter which way you look at South Africa's GDP figures, it looks horrible and just continues to get worse. It's actually suprising looking at these numbers that the ratings agencies have not jumped ship with regards to South Africa yet. The bar chart is the number most quoted by the press. This shows South Africa's GDP quarter on quarter annualised. Essentially value of economy in current quarter (say Q3:2016) over value of economy in previous quarter (Q2:216), and then applying a factor to estimate the growth of this quarter for a full year. Basically what growth for a full year would be if the economy grew by the same amount for another three quarters. Since it is an annualised number it is prone to large scale variations, as one is essentially using one figure to extrapolate for 3 more quarter. But this is international best practice for reporting on GDP figures.
The yellow line shows Year on Year growth rates in the economy. So in this case the value of Q1:2016 is compared to the value of Q1:2015 to get a annaul growth rate. This figure should provide a lot more stable series than the annaulsed GDP (bar chart). But even though it is more stable it has a clear downward trend from the middle of 2010 and it has been declining for the most part ever since. With a few strong quarters sending it in positive direction.
The red "step line" shows the average growth rate for a full year, when compared to the previous year. So the value of the economy in say 2015 over the value of the economy in 2014, this gives us a growth rate, and that is represented by the red "step line". It provides a clear indication of how South Africa's economic growth is getting worse and worse every year, and we are pretty much in scenario called "Stagflation". That's a stagnant economy, high unemployment and rapidly rising prices. See our write up on Stagnation, Stagflation or economic sweetspot
The red "step line" shows the average growth rate for a full year, when compared to the previous year. So the value of the economy in say 2015 over the value of the economy in 2014, this gives us a growth rate, and that is represented by the red "step line". It provides a clear indication of how South Africa's economic growth is getting worse and worse every year, and we are pretty much in scenario called "Stagflation". That's a stagnant economy, high unemployment and rapidly rising prices. See our write up on Stagnation, Stagflation or economic sweetspot
With most sectors of South Africa's economy struggling, it is usually the consumers (via consumer spending) that drives economic growth, or if that fails increased government spending is used to stimulate growth (proponents of John Maynard would know this theory all to well). But South African consumers are not driving growth, in part thanks to unneccesary interest rate hikes earlier in the year by the South Africa Reserve Bank (SARB), who forecasted inflation figures fare higher than the actual numbers turned out to be. See our poor inflation forecasting article here.
And government cannot drive growth as their revenue sources (company and personal income tax) has been struggling due to the weak economy. In addition to this large scale mismanagement of government funds means money is not used for it's intended purpose and in that way it has an impact on the economy too. As we mentioned before in our economic history write up, the economy under Jacob Zuma's rule has struggled, and it continues to do so and without clear policy shifts we suspect for the next few quarters history will repeat itself and South Africa's economy will just keep growing slower and slower until it flatlines. And it is a lot harder to revive a struggling economy that it is to cool down an overheated economy. As Japan, they have been struggling to stimulate their ailing economy for a large number of years, with limited success. China put the hand brake on their economy with serious market interventions and it has helped it's economy slow to achieve a more sustainable growth rate.
And government cannot drive growth as their revenue sources (company and personal income tax) has been struggling due to the weak economy. In addition to this large scale mismanagement of government funds means money is not used for it's intended purpose and in that way it has an impact on the economy too. As we mentioned before in our economic history write up, the economy under Jacob Zuma's rule has struggled, and it continues to do so and without clear policy shifts we suspect for the next few quarters history will repeat itself and South Africa's economy will just keep growing slower and slower until it flatlines. And it is a lot harder to revive a struggling economy that it is to cool down an overheated economy. As Japan, they have been struggling to stimulate their ailing economy for a large number of years, with limited success. China put the hand brake on their economy with serious market interventions and it has helped it's economy slow to achieve a more sustainable growth rate.
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