The latest official data on GDP paints a bleak picture of an economy that was starting to recover more robustly than expected in the first half, but was then savaged by July’s eight days of unrest and third-wave lockdown restrictions in the third quarter.
Now, we face a fourth quarter that will again be hit by a fourth wave of Covid, along with more load-shedding. Stats SA said the economy contracted by a worse-than-expected 1.5% in the third quarter, prompting economists to revise down their forecasts, having previously revised forecasts upwards, to well over 5%.
Now the consensus is likely to edge down towards 4.5%. Set that against last year’s 6.4% contraction and it’s not good news — especially given that the government expects GDP to average less than 2% in the next couple of years.
And amid the sobering data this week has come a rather stern update from the IMF, whose economists warned on Wednesday that “structural rigidities” are depressing private investment and hindering inclusive growth and job creation.
The IMF expects the economy to grow 4.6% this year but described it as alarming that the rebound had not decreased the unemployment rate amid deteriorating confidence.
It predicts a “lacklustre” medium-term outlook in which growth will average 1.4% per annum. The third-quarter numbers from Stats SA showed a fairly broad-based contraction across the economy, with the trade sector hard hit, as would have been expected as a result of July’s unrest.
We already knew from the SA Special Risks Insurance Association (Sasria) of R32bn of claims for unrest-related damage, and while large businesses have been able to recover, many small traders in Gauteng and KwaZulu-Natal are no doubt lost forever, with consequent damage to local economies and to jobs.
What’s yet to be seen is whether the damage to business confidence and investment will prove to be more persistent, with the impact spilling over into coming quarters. As it is, the third-quarter figures show investment is clearly not recovering.
The data also shows that household spending and exports, on which the economy has relied for the rebound, are not what they were, which is a concern. Most unexpected about the third-quarter growth numbers, however, was the 13.6% contraction in the agricultural sector.
Without that, as Matrix Fund Managers’ Carmen Nel points out, the third-quarter contraction would have been 1.1%, which is at least closer to what the consensus had expected. That’s still pretty dire though for an economy that was already vulnerable and shedding jobs, and it makes it more important than ever to heed the IMF’s words of advice.
They are hardly new but they wouldn’t have to be repeated so often — not just by the IMF but by business and economists and the social partners at the National Economic Development and Labour Council — if the government overcame its paralysis and implemented some of the promised reforms with speed. SA gets credit from the IMF at least for maintaining price stability and a sound financial sector.
But it stands warned, again, that it needs to fix its public finances and put a lid on its public debt level, with the IMF advising a “growth-friendly fiscal consolidation”, hard as that may be to achieve. For the rest, it’s the usual, but louder.
Raise the efficiency of the economy, particularly in network industries including electricity, telecommunications and transport, which are expensive and unreliable, raising the cost of doing business, says the IMF. Reduce regulatory barriers to private investment. Increase labour market flexibility to boost job opportunities.
Intensify actions to address weak governance and corruption. Sort out Eskom. Sort out Transnet. In fact, do an inventory of all the state-owned enterprises and get rid of or liquidate those that lack economic relevance and are not commercially viable, says the IMF.
It may sound like the proverbial broken record but that’s because SA really, really needs to get on with it. If the bleak third-quarter growth and unemployment numbers don’t prompt that, what will?
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