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South Africa's official GDP vs Household expenditure
Date: 9 September 2018 Category: Economics |
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We compare the official economic growth rate (GDP) of South Africa to the the growth rate of South African household expenditure. South Africa's economic growth is driven to a large extent by expenditure of South African households.
As trade, government spending, investment and savings all stagnating and not providing imputes |
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South African GDP vs South African household spending
The graphic below shows the quarter on quarter annaulised, seasonally adjusted growth rates in both South Africa's GDP and South Africa's household expenditure.
As the line graph shows the trend between the two variables are very similar, although levels are different. The correlation between the two variables is 54%. Basically 54% of the movements in the one variable can be explained by movements in the other variable. Consumer spending is one of the components of the basic economic growth equation: The equation in simple terms look as follows:
Y= C + I +G +(X-M) where
Now looking at the equation above and South Africa's economic situation lets put things into perspective.
C: Consumer spending. This part of the equation has showed slower and negative growth over time, As consumers cut back on spending due to the though economic times.
I: With land expropriation without compensation being high on the ANC's agenda, high company tax rates, high personal income taxes, restrictive labour laws etc all in place in South Africa, little to no new investments are taking place in South Africa, and over indebted consumers have little money to save, which means the I in this equation is going nowhere.
G: Government spending is on the decline as the government tries to reign in its spending due to lower taxes collected and increased use of debt to fund spending programs, With this declining or stagnating the G part of the equation is not providing growth to the SA economy
(X-M): With South African imports and exports basically cancelling one another out, and South Africa not being a really strong net export nation, trade is not providing the required imputus or momentum either for South Africa's economy to start growing.
And based on the above it is clear to see why the South African economy has basically been spinning its wheels for years and will continue to do so unless government implements radical policies to stimulate economic growth very soon.
Y= C + I +G +(X-M) where
- Y= GDP
- C= Consumer spending
- I= Investment/Savings
- G= Government spending
- X= Exports
- M= Imports
Now looking at the equation above and South Africa's economic situation lets put things into perspective.
C: Consumer spending. This part of the equation has showed slower and negative growth over time, As consumers cut back on spending due to the though economic times.
I: With land expropriation without compensation being high on the ANC's agenda, high company tax rates, high personal income taxes, restrictive labour laws etc all in place in South Africa, little to no new investments are taking place in South Africa, and over indebted consumers have little money to save, which means the I in this equation is going nowhere.
G: Government spending is on the decline as the government tries to reign in its spending due to lower taxes collected and increased use of debt to fund spending programs, With this declining or stagnating the G part of the equation is not providing growth to the SA economy
(X-M): With South African imports and exports basically cancelling one another out, and South Africa not being a really strong net export nation, trade is not providing the required imputus or momentum either for South Africa's economy to start growing.
And based on the above it is clear to see why the South African economy has basically been spinning its wheels for years and will continue to do so unless government implements radical policies to stimulate economic growth very soon.