Hard num­bers en­cour­ag­ing for bud­get

Business Day - - FRONT PAGE - BRIAN KAN­TOR ● Kan­tor is chief economist and strate­gist at In­vestec Wealth & In­vest­ment. He writes in his per­sonal ca­pac­ity.

When our newly minted min­is­ter of fi­nance, Tito Mboweni, presents his up­date on the state’s fi­nances later this month, he will have lit­tle al­ter­na­tive but to look through the rear-view mir­ror.

GDP and the balance of pay­ments — cru­cial in­for­ma­tion for the bud­get —will have been es­ti­mated only up un­til June 2018 and will be re­vised. The co­in­cid­ing busi­ness cy­cle, which is a good proxy for GDP, cal­cu­lated and pub­lished on a monthly ba­sis by the SA Re­serve Bank, is as out of date as the GDP num­bers.

Septem­ber’s con­sumer price in­fla­tion data will also be re­leased on Oc­to­ber 24. He must hope that the mis­an­thropes at his old Re­serve Bank do not re­gard pos­si­bly higher in­fla­tion, in the wake of the weaker rand and the higher petrol price — very ob­vi­ous neg­a­tive sup­ply side shocks to eco­nomic growth — as rea­son to hike in­ter­est rates. That would fur­ther de­press growth in spend­ing, GDP and tax col­lec­tions with­out al­ter­ing the path of in­fla­tion in any pre­dictable way.


Mboweni can take con­so­la­tion from the mar­ket re­ac­tion to his ap­point­ment. The rand im­me­di­ately strength­ened on the news, not only against the US dol­lar but also by a per­cent or two against the cur­ren­cies of our emerg­ing-mar­ket peers. Alas, global eco­nomic de­vel­op­ments a day af­ter his ap­point­ment — pes­simism about global and es­pe­cially emerg­ing-mar­ket eco­nomic prospects — weak­ened the rand against the US dol­lar and un­did the good news. A stronger rand can clearly re­duce in­fla­tion and, if it is sus­tained, re­duce the com­pen­sa­tion for in­fla­tion.

Our new fi­nance min­is­ter will hope­fully recog­nise that rais­ing tax rates to close the gap be­tween gov­ern­ment spend­ing and rev­enue is a large part of the prob­lem of, rather than the so­lu­tion to, SA’s stag­na­tion.

Per­haps he will re­port progress be­ing made in pri­vatepub­lic part­ner­ships, alias pri­vati­sa­tion, in tak­ing as­sets and li­a­bil­i­ties (ac­tual and con­tin­gent) and in­ter­est pay­ments off the bud­get.

The lat­ter is now run­ning at over 11% of all gov­ern­ment ex­pen­di­ture and is likely to in­crease fur­ther.

I can of­fer the min­is­ter a lit­tle con­so­la­tion de­rived from some very up-to-date in­di­ca­tors of the cur­rent state of the econ­omy. That is from new ve­hi­cle sales and the sup­ply of cash is­sued by the Re­serve Bank in Septem­ber. These are ac­tual hard num­bers and do not de­pend on sam­ple sur­veys that take time to col­lect and col­late.

These two hard num­bers are com­bined to pro­vide a hard num­ber in­di­ca­tor of the state of the econ­omy. It does a very good job an­tic­i­pat­ing the turn­ing points in the SA busi­ness cy­cle.

If cur­rent trends in new ve­hi­cle sales and the de­mand and sup­ply of cash per­sist, the hard num­ber in­di­ca­tor is point­ing to pos­i­tive real GDP growth of what would be a very sur­pris­ing pos­si­bly 3% over the next 12 months. Cur­rent sales of new ve­hi­cles are run­ning at an an­nual rate of 551,000, fore­cast to rise mod­estly to an an­nual equiv­a­lent of 570,000 units in 12 months.

The de­mand for cash sug­gests more im­pe­tus for growth. It is re­cov­er­ing quite strongly and is ex­pected to grow 7% in 2019, and when ad­justed for con­sumer price in­fla­tion, to rise at a near 4% real rate in 2019.

What does this grow­ing de­mand for old-fash­ioned notes and coins say about the SA econ­omy, given all the elec­tronic al­ter­na­tives to cash? It sug­gests that much eco­nomic ac­tiv­ity is not be­ing recorded in the GDP data.

Rais­ing the con­tri­bu­tion made by the un­recorded econ­omy to GDP is long over­due. It would im­prove all the crit­i­cal ra­tios by which our econ­omy is judged.

We econ­omy watch­ers and the Trea­sury must hope that this growth in the de­mand for and sup­ply of cash — so in­dica­tive of spend­ing growth — con­tin­ues to run ahead of in­fla­tion.

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