Mar 28 2015 Fin24
Johannesburg – It seems South Africans could soon get another major adjustment of the gross domestic product (GDP) and that may prevent a ratings downgrade by a few years, according to economist Mike Schussler.
He said in the markets everybody knows that the South African economy, while bigger, has a slightly lower growth trend.
“But it was news that rating agencies took on board as did our National Treasury, SA Reserve Bank and all economic forecasters. Our growth trend had declined and so had our growth potential,” explained Schussler.
The latest Quarterly Employment Survey number released earlier this week show that the number of people in SA’s non-farm formal sector had again been underestimated.
“Simply put, we underestimated the number of people on our payroll by 408 000 or about 5%. We have done this before when, in April 2007, Statistics SA also acknowledged that they had underestimated the non-farm payrolls by about 750 000 or about 10% at the time,” said Schussler said in an opinion piece for TreasuryOne.
Overall the old data said SA’s economy grew at an average rate of 3% since 2006, but the new data – despite SA’s GDP increasing with at least 3.4% in nominal terms – showed that real GDP growth averaged only 2.9% or a little less.
“Most of the world revised their numbers in 2014 and their GDP’s increased slightly more and in some cases like Nigeria much more than South Africa’s. Our growth was a little worse and we may not have known it then, but we fell a little in the economic league,” explained Schussler.
“In short, most countries had an increase in their average growth rate over the period; we had a growth rate decline. Growing at 3% or above over a period of time certainly puts one higher on the investor radar screens and also the odds of a ratings downgrade would decrease somewhat.”
The total wages and salaries missed is nearly R130bn over a year. This alone adds 3.4% to South Africa’s GDP.
“It is likely that GDP will adjust with more than 5%, which again should impact on recent growth and, while it again may not make it more positive, it does indicate that we had better growth over the last decade or so than we previously thought,” said Schussler.
“Again all the GDP ratios such as debt to GDP will again be adjusted in our favour and again the deficit to GDP may actually be much more favourable and that may actually starve off a ratings downgrade by a few years even.”
The GDP Growth rate should also be adjusted upwards and, while it will not put South Africa much higher up the economic rankings ladder, it will still help to improve the country’s overall situation.
The economic potential of SA would also now be a little higher and that plays a big role in forecasting.
“Perhaps even the rand would have been a little stronger as our growth rate does play a small role along with the current account deficit to GDP ratio, which too would have declined to say 5% in the four quarter and not 5.4%, which could have helped a heck of a lot in perceptions about SA,” said Schussler.
“It is likely that inflation would have been a little lower and particularly petrol and maize prices should have been lower.”
A small adjustment would have had a large role to play in the numbers that matter – from the price of petrol to food and after tax income to the interest rates obtainable.
“Let’s hope our statisticians hold things together better in the future,” said Schussler.
“When small numbers get missed the ability of bigger numbers to impress get dashed. Dashed hopes lead to taxable mistakes and punishable ratings.”
Mar 28 2015 Fin24