Tuesday, January 18

The economy is alive and well


There are literally hundreds of jokes about statistics and statistics. There are good reasons why almost none are flattering, as the GDP data for the 3rd Quarter 2021, published by Statistics South Africa (StatsSA).

The statement that the South African economy contracted by 1.5% during the 3rd This quarter is misleading as this figure has been subjected to a quarterly GDP data calculation that has been annualized and adjusted for inflation through a variety of deflators.

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By following the good advice contained in the Glossary of Statistical Terms published by the Organization for Economic Cooperation and Development (OECD), that is, simply calculating quarterly real GDP growth rates on an annual basis, deflated by a deflator of Referenced as the Consumer Price Index (CPI), a much more optimistic picture of the South African economy emerges.

During the 3rd quarter, total economic output at market prices amounted to R1 566 billion. The figure for the same quarter of 2020, adjusted for the CPI, was R1 474 billion. This represents a healthy 6.2% real growth rate, not bad when you consider the antics of the looters who hit parts of KwaZulu-Natal and Gauteng in July! In nominal terms, the annual growth rate was very impressive, 11.5%.

The table below illustrates the substantial difference between the growth rate calculation that StatsSA always highlights and the one recommended by the OECD (Measure # 4, printed in bold).

Two important advantages of using year-on-year comparisons of quarterly GDP data rather than a quarterly approach are, firstly, to avoid magnificent uneven economic phenomena, such as harvest seasons for agriculture and random events, as a natural phenomenon. disaster or a health pandemic.

Second, it avoids the need for complicated formulas designed to eliminate seasonality. As such, the annual approach is more objective.

Justification of the belief that the economy did not contract significantly during the 3 years.rd The quarter is provided by several key indicators, including the following:

  • It is very clear from the 2021 Medium Term Budget Policy Statement (MTBPS) that government tax revenues have exceeded February budget estimates by a considerable margin. Tax revenues are, in practically all cases, directly and indirectly correlated with some form of economic activity, especially value added, consumer spending and labor compensation.
  • Total wages and salaries amounted to R714 billion in the 3rd 2021 quarter, an increase of 2.4% in real terms over the same quarter last year. Labor compensation represents more than 50% of value added in the economy and, with South Africa’s very high propensity to consume, this growth rate should be highly correlated with GDP growth.
  • Wholesale sales, which represent more than 40% of GDP, increased by 5.3% in the 3rd 2021 quarter (quarter-on-quarter), and almost 11% year-on-year (in real terms).
  • South Africa’s leading business cycle indicator hit a new high in May 2021 and the September reading of 125 was 13% higher than the previous year’s figure.

There is no doubt that the South African economy underperformed over the 3 years.rd quarter, mainly as a result of the July riots. However, it is not sincere to create the impression that economic activity is in decline when the exact opposite is the case, as vividly illustrated by the rise in the four-quarter moving average of quarterly GDP to a new all-time high (in real numbers). terms).

Dr. Roelof Botha is an economic advisor to Optimum Investment Group.


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