Escaping recession a welcome surprise

If the recession didn’t happen, should we call Zuma back? This was the response from one wag to the collection of surprises in Tuesday’s fourth-quarter GDP figures, which left at least some economists reeling.

One lot of surprises came with a series of routine revisions to the data for the past three to four years that had the effect of wiping out 2017’s recession and painted a rosier picture than we had assumed.

The other was in the fourthquarter figures themselves. The South African economy grew faster than expected during the quarter, bringing the growth rate for 2017 to a better-thanexpected 1.3%.

Revisions are fairly standard stuff for the national-accounts statisticians who compile the GDP numbers. They estimate quarterly growth statistics based on the data they have at the time, but over time much more and better information becomes available, which they use to benchmark and if necessary revise the numbers.

Statistics SA economic statistics head Joe de Beer says the agency did a study a couple of years ago and found that the average revision was 0.3 to 0.4 of a percentage point over a year, which was not out of line with Organisation for Economic Co-operation and Development standards.

Some countries do smaller, more frequent revisions; others opt for larger, less frequent ones. But in SA’s case, the revisions of the past decade or two have been more upward than downward, suggesting that Stats SA has a tendency to be conservative in its quarterly estimates and making the new data always seem like a magical improvement.

The latest revisions left the growth rate for 2015 unchanged but doubled 2016’s growth from a near zero 0.3% to a less horrible 0.6%, mainly because the fourth quarter of 2016 swung from negative to positive, so there went one of the two quarters of what we had thought was a recession.

Among other things that suggests the government’s revenue shortfalls of the past two fiscal years can’t be blamed on poor growth to nearly the extent they had been and that poor tax administration and compliance was a much greater factor.

At the same time, though, upward revisions to GDP could help improve the fiscal ratios and provide a higher base for future growth, vindicating Finance Minister Nhlanhla Nene’s confidence that the Treasury’s 1.5% growth estimate for 2018 will be exceeded.

Not that there is yet much to celebrate. Average growth for the past three years is still only just above 1%, in a country with a population growth rate of 1.7%, so SA is still going backwards in per capita terms.

And the detail of the betterthan-expected figures raises questions about how much of a growth bounce we can expect. Agriculture’s 37.5% quarterly growth rate was the big driver for the quarter, with much of it from “animal products”, possibly the result of the higher prices farmers are fetching for livestock after the drought decimated herds.

Agriculture was a big contributor to 2017’s growth as it recovered from the drought with bumper crops, but that will not be repeated in 2018.

Last year’s 1.3% growth came essentially from just three sectors, two of which (agriculture and mining) are highly volatile. The trade sector, usually a mainstay of SA’s consumption-driven economy, was negative for the year, though it bounced in the fourth quarter as consumers started to spend again on clothing and furniture. That’s a good sign for 2018, and lower inflation and higher consumer confidence should help to drive cyclically stronger growth this year.

But it’s cyclical, not structural, so not necessarily sustainable, unless SA starts seeing the investment needed to expand capacity and lift the economy’s potential growth rate. The most encouraging surprise in the fourth-quarter figures is that investment spending (gross fixed capital formation) jumped 7.4% after contracting for seven of the previous eight quarters.

It’s not clear, though, to what extent it was investment to expand capacity rather than just long-overdue stay-in-business spending, and it evidently wasn’t the kind of bricks and mortar spending that builds infrastructure. Much of it was on machinery and equipment and transport equipment, and it went with a sharp jump in imports and inventories.

But any investment is good, and it suggests businesses were starting to import new kit for better times even before they knew the outcome of the ANC conference in December.

The boost to business confidence since then should mean more investment, though it takes time for big investment decisions to translate into projects and spending. And confidence on its own isn’t enough to drive an investment boom: the state will have to do more to effect growth-boosting reforms before companies will commit big sums. And since the figures confirm that the government is cutting its own investment spending, it will have to get serious about public-private partnerships.

Meanwhile, Citi economist Gina Schoeman says: “We economists are never happy with consumption-driven growth, but we will take it for the moment.”

That could get SA’s growth rate to 2% or more next year. But the latest data make it clear that the Ramaphosa administration will have to try harder if they want to get to 3% growth or more.

THE ECONOMY GREW FASTER THAN EXPECTED DURING THE QUARTER, BRINGING THE GROWTH RATE FOR 2017 TO A BETTERTHAN-EXPECTED 1.3%