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Blog: 7 March 2017 (SA's economic growth 4th quarter 2016)
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In today's blog we take a look at South Africa's 4th quarter GDP numbers released by Statistics South Africa and find that 2016 was a year that South Africa's economy would like to forget. And would hope not to repeat in 2017 as the unrest that comes with poor economic performance (lack of jobs, cost cutting measures implemented by companies, lower tax revenues for the state, less money for service delivery demands) are increasing an is set to continue at an accelerated pace as the South African government struggles to revive an ailing economy heavily dependent on commodities while monetary policy (set by the South African Reserve Bank) is not helping government as it seems largely uncoordinated with fiscal policy programs set out by the State.
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Just how poorly did SA's economy perform in 2016?
Well that answer has many questions. Depends on the growth figures you look at. But the basic theme of all the variables are pretty much the same. SA's economy did not perform very well in 2016 at all. Below we will take a look at a few different graphics, that illustrates just how badly it went with the SA economy in 2016.
The bar chart above looks at the annual growth rate year on year for South Africa's GDP (using 2010 constant prices. I.e price movements from 2010 onwards have been removed so that underlying growth excluding inflation is looked at). The above growth rate calculations is different to the figure popularly quoted in the media (as that figure looks at growth quarter over quarter en estimated to a yearly growth) while the figures above takes the annaul values and compares growth year over year.
As can be seen from the bar chart above the underlying trend in South Africa's GDP has been overwhelmingly negative since from 2011. The 2011 figures shows how much economy grew from 2010 to 2011, 2012 shows growth from 2011 to 2012 etc.
Sadly for the years we are looking at 2016 recorded the slowest growth rate of all the years, with the economy growing a pathetically slow 0.3% from 2015 to 2016. A far far cry from government's pipe dream of 6% in order to significantly address South Africa's unemployment crises.
The next graphic we will look at calculates the growth rate of a specific quarter (an not annual data as used above) and compares that quarter's value with the same quarter of the previous year in order to get a year on year estimate (so for example if the economy was worth R110 in Q1:2015 and it was R100 in Q1:2014 the economy grew by 10% year on year).
Sadly for the years we are looking at 2016 recorded the slowest growth rate of all the years, with the economy growing a pathetically slow 0.3% from 2015 to 2016. A far far cry from government's pipe dream of 6% in order to significantly address South Africa's unemployment crises.
The next graphic we will look at calculates the growth rate of a specific quarter (an not annual data as used above) and compares that quarter's value with the same quarter of the previous year in order to get a year on year estimate (so for example if the economy was worth R110 in Q1:2015 and it was R100 in Q1:2014 the economy grew by 10% year on year).
As can be seen from the bar chart above the story being told by this graph is a little different to the one being told by the annual growth rates as calculated using annual data. This graphic shows that in the last three quarters of 2016 things have started turning around a little for the South African economy. With GDP in quarter 3 and quarter 4 being 0.7% higher when compared to quarter 3 and 4 of 2015 respectively. But the story doesn't end there. Below we will take a look at the GDP figure as quoted in the media and in news papers.
It is officially known as the quarter on quarter seasoanlly adjusted annualised GDP using 2010 constant prices. Wow, that is a mouhtful. So what does it mean? It essentially says the latest quarter (quarter 4, 2016 in this case is compared to quarter 3, 2016). And seasonal variations and impacts are removed from this growth rate. Then the growth over these two quarters are "annualised" to get an estimate for annual growth. As the growth only reflects growth over 1 quarter, it is "annualised" in order to provide a estimate of annual growth for a year. As for 2010 constant prices, as discussed above that means that inflation has been stripped out of the growth rates so that the underlying growth can be determined without undue influence from price increases). So what does the main stream media and headline grabbing GDP numbers say? We take a look below.
It is officially known as the quarter on quarter seasoanlly adjusted annualised GDP using 2010 constant prices. Wow, that is a mouhtful. So what does it mean? It essentially says the latest quarter (quarter 4, 2016 in this case is compared to quarter 3, 2016). And seasonal variations and impacts are removed from this growth rate. Then the growth over these two quarters are "annualised" to get an estimate for annual growth. As the growth only reflects growth over 1 quarter, it is "annualised" in order to provide a estimate of annual growth for a year. As for 2010 constant prices, as discussed above that means that inflation has been stripped out of the growth rates so that the underlying growth can be determined without undue influence from price increases). So what does the main stream media and headline grabbing GDP numbers say? We take a look below.
First things readers will notice is how much more volatile the growth rates are using the quarter on quarter annualised numbers are. And it shows quarter 3 and quarter 4 of 2016 was not nearly as rosy as the year on year calculated using quarters above represented it to be. One should therefore always be carefull when looking at the GDP numbers and when asking or answering how the economy did during a particular period of time as the answers will differ significantly depending on the method of calculation used. The official GDP growth rate is now sitting at -0.3% and this will be the number quoted in the news papers for the next few months until quarter 1 of 2017 is released.
It doesn't matter how one spins it or what one looks at, South Africa's economic performance is pretty bad. Especially when one compares it to more developed countries such as the USA and the UK, whom had significant troubles during the financial crisis but whom has recovered a lot better than South Africa. It doesn't look like South Africa has truly recovered from the financial crises brought on by the US sub-prime mortage crisis. And a big part of that is due to SA's continued heavy dependence on commodities. It's economic structure is far to simplistic and to heavily dependent on a few industries. Without greater diversification in it's economy, South Africa's economy will continue to struggle to deliver sustained and continued economic growth and it will by the looks of it stumble from crisis to crisis with no clear path of getting out of trouble and growing sustainably at rates a lot higher than its current rate in order to fight unemployment, social unrest and the likes.
With SA's monetary and fiscal policy largely being at odds, this will further hold SA's economy back as interest rates are raised by the South African Reserve Bank (even though price increases are not caused by demand pull factors but rather cost push prices). As it seems they have a very narrow minded approach to interest rate setting and will look to raise interest rates based on future inflation forecasts regardless of what the causes of inflation numbers are. No point in punishing consumers when food prices edge higher due to the drought in SA. Not consumers fault. Neither is excessing electricity tariff increases. These factos push up inflation, consumers have no control over it but SARB seems hell bent on increasing rates whenever there is slight indication that inflation is edging higher.
Perhaps a more moderated approach is required by SARB, by them recognising the struggles consumers face, and in addition to this greater policy coordination between National Treasury (Fiscal Policy) and the Reserve Bank (Monetary Policy). As a uncoordinated monetary-fiscal policy mix has lower overall GDP growth rates when compared to coordinated policies.
While SA consumers dream of greater policy coordination and implementation from South Africa, it seems its economy will keep limping along slowly offering little to no hope to most South Africans. And with taxes being raised in April after SA's #budget2017 we see very little good news in the air for South Africans. South Africa's economy is VROT.
It doesn't matter how one spins it or what one looks at, South Africa's economic performance is pretty bad. Especially when one compares it to more developed countries such as the USA and the UK, whom had significant troubles during the financial crisis but whom has recovered a lot better than South Africa. It doesn't look like South Africa has truly recovered from the financial crises brought on by the US sub-prime mortage crisis. And a big part of that is due to SA's continued heavy dependence on commodities. It's economic structure is far to simplistic and to heavily dependent on a few industries. Without greater diversification in it's economy, South Africa's economy will continue to struggle to deliver sustained and continued economic growth and it will by the looks of it stumble from crisis to crisis with no clear path of getting out of trouble and growing sustainably at rates a lot higher than its current rate in order to fight unemployment, social unrest and the likes.
With SA's monetary and fiscal policy largely being at odds, this will further hold SA's economy back as interest rates are raised by the South African Reserve Bank (even though price increases are not caused by demand pull factors but rather cost push prices). As it seems they have a very narrow minded approach to interest rate setting and will look to raise interest rates based on future inflation forecasts regardless of what the causes of inflation numbers are. No point in punishing consumers when food prices edge higher due to the drought in SA. Not consumers fault. Neither is excessing electricity tariff increases. These factos push up inflation, consumers have no control over it but SARB seems hell bent on increasing rates whenever there is slight indication that inflation is edging higher.
Perhaps a more moderated approach is required by SARB, by them recognising the struggles consumers face, and in addition to this greater policy coordination between National Treasury (Fiscal Policy) and the Reserve Bank (Monetary Policy). As a uncoordinated monetary-fiscal policy mix has lower overall GDP growth rates when compared to coordinated policies.
While SA consumers dream of greater policy coordination and implementation from South Africa, it seems its economy will keep limping along slowly offering little to no hope to most South Africans. And with taxes being raised in April after SA's #budget2017 we see very little good news in the air for South Africans. South Africa's economy is VROT.