Johannesburg - Is South Africa manipulating its gross domestic product (GDP) growth figures and other data in order to achieve a favourable outcome, which will make its growth outlook better? This is a question that has been posed by Lefika Securities economist Colen Garrow.
Read: SA's GDP growth slows
First GDP, which is normally released two calendar months after the quarter, will in this case be published on June 7, a few days after S&P Global Ratings makes its announcement on the review it has done on South Africa’s BBB- lower investment grade rating.
Downgrade
Garrow said in an investment note this week: “GDP is the single most important economic indicator since it influences a wide range of key financial stability ratios, which are references against output, such as the fiscal deficit, public debt, interest on servicing debt, among many others.”
He said markets anticipated a one-notch downgrade by S&P in June, if not in December, after the National Treasury released its medium-term budget policy statement.
Statistics SA this week released its GDP revisions for the period 2010 to 2015, measured by both the production and expenditure side of the economy. Garrow said most observers were questioning the timing of the revisions of the data, if not the data itself.
“For instance, the fourth quarter 2015 data has been revised lower to 0.4 percent from 0.6 percent. This will improve the base against which the first quarter 2016 GDP is calculated, and elevate seasonally adjusted and annualised growth in the first three months of this year.
“Brought into focus as well is the accuracy of measurements markets already have information on for the first quarter of the year.”
He said mining was known to have contracted by 5.2 percent, manufacturing grown by a paltry 0.1 percent, while retail contracted by 0.2 percent.
“Will these be any different to data which are soon to be reported next month? Possibly, since Stats SA has announced that expenditure and production numbers will be included in forthcoming GDP data.”
Standard Bank said: “Importantly GDP per capita growth is now above 1 percent in 2012 and 2013 whereas previously it fell below 1 percent from 2012 onwards. From this perspective it can be argued that South Africa’s per capita growth rate may have fallen below 1 percent cyclically as opposed to structurally.”
Negative growth
“On the other had we note that for 2015 real per capita GDP growth is negative using both the old (minus 0.3 percent year on year) and the new (minus 0.4 percent year on year) methodologies and that with a population growth rate of 1.7 percent per annum and a potential GDP growth rate of just over 1.5 percent, our per capita GDP growth is likely to remain structurally negative until potential GDP growth rises to above 1.7 percent,” Standard Bank added.
“From this perspective, while the latest upward revision to GDP is helpful, it may not provide a basis for S&P to argue that SA’s GDP per capita growth rate is structurally investment grade.”
Michael Manamela, a statistician at Stats SA, said yesterday: “We have been continuously notifying users about the integration of the expenditure on GDP into one publication with publication-based GDP and the change in publication dates from 60/61 days to 67/68 days after the reference quarter. The revisions from the previous quarter resulted from revisions of source data and integration of expenditure estimates.”
However, economists in general agree that the local economy is in a stagflationary environment, where economic growth stalls and inflation runs rampant. They said the economic outlook had been continuously revised lower to make provision for the headwinds it was facing.
The first quarter economic report from Novare Investment, compiled by its head of offshore investments Francois van der Merwe, said the outlook was less positive and the economy probably stagnated during that period.
Challenges
The report said while the challenging global backdrop certainly played its part, local conditions such as soft commodity prices and one of the worst droughts on record exacerbated the situation.
“Matters were not helped by the country’s well publicised political shenanigans. The clear rift between Finance Minister (Pravin Gordhan) and other parts of government’s leadership, and accusations of state capture, along with the Constitutional Court’s ruling that President (Jacob) Zuma flouted the country’s constitution, harmed investor sentiment and the country’s image.”
Novare said in addition to the damage caused, it also drew away from the reforms necessary to put South Africa on a sustainable recovery path. Compounding the effects of a growth slowdown was the extension of the domestic rate hiking cycle. It said there was a real risk S&P would cut the country’s investment grade to junk as soon as its June meeting, and the local bond market already partially reflected a rating downgrade.
In March, the Reserve Bank’s leading indicator released on Tuesday shifted higher to 91.9 from 91.6 the previous month. The indicator collects data including vehicle sales, job advertisements and business confidence.
Garrow said annualised growth, however, in the number remained weak, contracting for a 29th consecutive month by 0.4 percent from the minus 4.5 percent reported for the previous month. “It is this contraction which suggests that the economy is poised to fall into recession.”
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