Growth remains
in 3 to 3.5% range
The most important message to be derived from fourth quarter GDP statistics published by
SSA is confirmation of the fact that the economy maintained a solid, albeit moderate,
underlying growth rate, of between 3 and 3.5% for the fifth quarter in a row. This might
not be apparent when looking at the figures for total GDP growth, either on a y-o-y or
q-o-q basis. However, once one nets out the impact of the volatile primary sectors (i.e.
agriculture and mining), particularly agriculture, one observes that y-o-y growth, which
had remained virtually constant at 3.5% or 3.6% for the previous four quarters, slowed
only marginally to 3.2% in the fourth quarter. In a similar vein, growth excluding the
primary sectors measured on a q-o-q annualized basis, was unchanged from the third
quarter’s growth, at 3.4%. This manifestation of stability in overall economic growth
is reassuring and encouragingly different from the boom/bust cycles of previous periods of
economic growth over the past four decades.
Growth ought to remain bewteen 3 and
3.5% in 2001
The stable nature of growth confirms the view we have been expounding for the past
year that boom/bust cycles of economic activity are unlikely to recur in the amplitude to
which we have become accustomed. The reason for this is simply that interest rates no
longer need to rise in the face of accelerating economic growth because of four key
structural improvements. Firstly, long term capital inflows have increased since 1994
because foreigners have become willing to invest in our financial markets in the wake of
the demise of apartheid and because exports have become more competitive due to the steep
30% cumulative real depreciation of the Rand associated with the partial relaxation of
exchange controls, since 1995. A long term increase in the price of PGM’s is also
helping. Secondly, the lifting of trade barriers and the desire of South African firms to
become more globally competitive has resulted in massive corporate reengineering and
improved competitiveness which has seen inflation declining. Thirdly, excellent fiscal
discipline has relieved upward pressure on interest rates.
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Fourthly, monetary discipline is
ensuring that the massive credit splurges which necessitated a tightening of monetary
policy in the past do not recur. The benefits of all these factors in preventing interest
rates from having to rise again as in the past has ensured that the financial position of
corporations and individuals has improved to its healthiest level in years. This, together
with the improvement in exports expected from the 10% real depreciation of the Rand since
September 2000, as well as the tax cuts and more expansionary fiscal policy introduced in
last week’s Budget, should combine to ensure that a growth rate of 3 to 3.5% is
maintained in the coming year. Indeed, the biggest threat to the sustenance of this growth
rate in the next year or two stems not from domestic factors but rather from developments
abroad and in particular the possibility of a severe slump in the US economy. Acceleration in GDFI sectors
On a micro level, the important observation to make is that the more industrially and
investment-orientated sectors were the ones that seemed to improve growth most in the
fourth quarter. For example, mining, manufacturing, electricity, construction and
transport & communication all saw an acceleration in growth on a q-o-q seasonally
adjusted annualized basis. In contrast, growth in the retail, wholesale, trade and
catering sectors, as well as in finance and real estate, slowed down. In other words,
there seems to have been a change in leadership insofar as the sectoral performance of
growth is concerned, encouragingly to more labour-intensive sectors. As such the declining
trend of formal sector employment stands to be arrested. Nevertheless it is also important
to mention that one finds it difficult to reconcile the monthly growth rates in production
as reported by SSA for manufacturing, mining and electricity with the GDP growth rates.
Q-o-q seasonally-adjusted growth rates for these three sectors were 2.6%, 1.2% and 1.2%
respectively as reported earlier for the period October to December. This ought to have
yielded annualized growth rates of 10.8%, 4.9% and 4.9% respectively, far higher than the
GDP growth rates reported. It is possible that there is a wide divergence between growth
in production on the one hand and growth in value added (GDP) on the other hand. |
