Silver lining for flat-lining GDP

WITHOUT INVESTMENT, SA CANNOT SUSTAIN HIGHER RATES OF ECONOMIC ACTIVITY

Economists had been expecting something of a bounce in the economy in 2017, after a bad year in 2016. But the latest GDP figures from Statistics SA suggest this year might not be quite so bouncy — after 2016 was worse than most expected.

It turns out the economy grew just 0.3% in 2016, if growth this can be called, when the population is growing by 1.7% a year. That means that we have now been going backwards as a nation, in per capita terms, for three years.

And though most economists have been forecasting that the economy will grow faster this year, none of the estimates is as high as 1.7%. And the IMF, whose 0.3% forecast for 2016 has proved to be accurate, is forecasting 0.8% for 2017. So while it may be churlish to argue about decimal points, we could be below 1% again.

At least SA is not Brazil, which posted an eighth consecutive quarter of actual negative growth, with the economy contracting by 3.6% in 2016 following a 3.8% contraction in 2015. But Brazil’s recessionary woes should be a lesson for SA on how bad it can get, economically speaking, for countries that get the politics and the economic policy wrong and plunge into a ratings downgrade spiral.

SA’s latest growth numbers will do nothing to allay the concerns of the ratings agencies, which have us on negative outlook in large part because of concerns about the economy’s weak growth prospects.

However, it may not be all gloom. The rains are falling in large parts of SA and the latest crop estimates look good, suggesting the agricultural sector could help to drive higher growth this year. The commodities cycle looks better too, so mining and manufacturing, which dragged down fourthquarter activity, could help to drive exports and growth.

Another plus is improved prospects for the world economy, which the Organisation for Economic Co-operation and Development said on Tuesday would pick up modestly to grow at 3.6% in 2018, up from 3.3% in 2017 — though there are significant risks even to this modest projection.

Assuming global growth picks up, SA could benefit from improvements in export-oriented industries. The 12.5% increase in exports in the fourth quarter is encouraging, as is the contribution made by net exports to the 2016 growth rate. The global growth pick-up can’t entirely be relied on, at a time of rising protectionism and uncertainty in global markets, but it should help SA’s economy in the next couple of years.

One big concern is the continued decline in investment spending, which decreased by 3.9% in 2016, even though the fourth quarter showed a slight turnaround after four consecutive quarters of decline. Without investment in new capacity and new projects, SA cannot sustain higher rates of economic activity. And without confidence, investment is unlikely to flow.

The trouble is that while the weather and the global economy might provide a boost, SA’s own policy makers are doing nothing of substance to lift the growth rate. If anything, they are doing the opposite, deterring investment and undermining business and consumer confidence with disastrous policy signals in areas such as mining, empowerment, land reform and immigration. While the government frequently promises that it is looking at all of this, President Jacob Zuma himself is advocating a populist turn.

Add to that political infighting, state capture, corruption and politically driven attacks on banks and others in business and the recipe is there for an economy that can do little more than stagnate, at best. Growth of 1% or even 2% is not even close to adequate. But until we fix the politics, we are unlikely to be able to fix the economics.