For reasons that are somewhat hazy, but certainly important, the new administration and the new president are not inspiring the economy to rev up. This week, three indicators of very different types underlined that significant development.
On Tuesday, the IMF downgraded SA’s already sclerotic economic growth even more. In its quarterly World Economic Outlook, it cut SA’s growth forecasts by 200 basis points (a 100th of a percentage point) so it estimates 2019 economic growth will be 1.2%, not 1.4%. It also cut 2020 growth by the same amount to 1.5%.
Just to be clear about this, it means SA is poorer because economic growth is slower than the population growth rate. It’s truly dire. To put that in context, consider that this rate of growth is lower than the global average, it’s much lower than average sub-Saharan Africa and it is about a third the rate of developing countries. No major developing country is growing so slowly. It’s a shocker.
It’s also below Treasury’s forecast of 1.5% for 2019 and the Reserve Bank’s projection of 1.6%.
What is not shocking, however, is the 200-basis-point decline because the IMF applied that rate almost across the board. In any event, it’s not very large, so we are hardly talking about a sea-change. The main problem is declining growth in China and the US/Chinese trade war, and a bit of a downturn in Europe.
It’s worth pointing out too that the IMF numbers are very influential, and can change expectations. And, being predictions, they can be very wrong; in 2018 the IMF was predicting SA would grow by 1.5%. Eventually, growth came in at 0.8%. That would be almost 100% wrong.
The second hit came on Wednesday when the Sacci Business Confidence Index (BCI) for March 2019 declined by 1.6 to 91.8 compared with the February 2019 figure, and 5.8 below the March 2018 figure of 97.6.
Here too, the news is only moderately bad if you look a bit closer. Six of the 13 sub-indices of the BCI improved on their February 2019 readings, four declined and three remained unchanged. Sacci said the BCI reflects a depressed business climate that is dominated by concerns over continued difficult and uncertain domestic economic circumstances. The upcoming 8 May 2019 general elections are adding to this uncertainty, and Moody’s decision not to change its ratings provided only short-lived relief.
The third hit came from BankservAfrica’s monthly Economic Transaction Index (BETI) data for March. This measure has the great advantage of being very specific and very fast, measuring essentially all bank transactions.
“In March, banked economic transactions declined by 0.4% from February. On an annualised basis, the BETI dropped by 1.8% and declined by 0.6% on a quarterly basis,” the organisation said.
The March number essentially reflects the load shedding, which was intense that month, but the quarterly decline does suggest the economy is not kicking up a gear.
This mixed bag is a gloomy picture, so what should be done? It’s a difficult question because economists might argue that in some ways, the gloomy mood is absolutely justified, and in other ways, it is absolutely not. A new government is a clear improvement, but on the other hand, it’s becoming clearer that, as the French phrase puts it, plus ça change: the more things change, the more they stay the same.
The IMF says in its typical convoluted language that “gradual fiscal consolidation will be needed to stabilise the public debt,” and that “public wage savings should be given priority to preserve vital social outlays for the vulnerable and fund productive investment to boost potential growth”.
Transfers to public entities should be contingent on downsizing and eliminating wasteful spending. The fiscal consolidation could also be supported by expanding the tax base and through strengthening tax administration and effective anti-tax-avoidance provisions that reduce profit shifting.
And, structural reforms, particularly to product and labour markets, would foster an environment conducive to expanding private investment, job creation and productivity growth, it says.
That all seems sensible. But how much of that will actually happen? The judgement of the economy so far is, not much. DM
"Each man believes on his experience" ~ Empedocles