EDITORIAL: Recession not the only worry
The government needs to infuse the economy with confidence and business needs to capitalise on that confidence and invest
First, just to rub salt into the wound, it was widely expected that the rebound in mining and, particularly, in agriculture would help SA avoid a recession. And they did rebound, but insufficiently to counterbalance something that has been apparent in the recent company results of the retail sector: a consumer spending pattern that is fraught with strain and apprehension.
The worst-performing sectors were those associated with the retail trade, which is of huge concern because this was the sector that more or less held the ship on course in 2016.
It is a truism of South African economics that when consumers feel buoyant, the country prospers.
But this time, the worst-performing sector was trade, catering and accommodation, where output plunged 5.9%, cutting 0.8percentage points off headline growth. Banking added to the gloom, with the financial and business service sector contracting for the first time since the international recession in 2009.
Taken together, this was sufficient to eclipse farm output, which has been rising rapidly as SA recovers from 2016’s drought, even though agricultural GDP jumped 22%, the fastest rate in a decade.
The second reason for concern is that these numbers reflect the state of the economy before the political drama of the midnight cabinet reshuffle in which a host of ministers, including Pravin Gordhan, was booted out of the Cabinet. Gordhan was sacked at the end of March, so any effect that might have had on confidence will be clear only when second-quarter numbers are released. In the meantime, it’s obvious that the problem is in the consumer-facing sectors. What effect the reshuffle and the consequent political drama will have on consumers is unknown, but it is unlikely to be good.
As Capital Economics economist John Ashbourne points out, this result suggests that high unemployment and stagnant wages are finally dragging down the long-resilient consumer sector. The numbers confirm that the economy has contracted in four of the previous eight quarters. This is among the worst performances recorded anywhere in the emerging world. SA has not achieved three consecutive quarters of growth since 2014-15, he points out.
In this context, one is inclined to grasp at any positive straw, and happily there is at least one. Gross fixed capital formation rose for a second consecutive quarter in the first quarter. Investment spending fell for four consecutive quarters in 2016 and the year before, and that was considered a key reason why headline growth was weak in 2016.
Tuesday’s GDP figures help explain why, after some initial confidence, there has been a host of downward revisions of SA’s likely growth for the full year, the latest being the World Bank, which is now expecting only 0.6% in 2017.
So what is to be done? It’s a frustrating and difficult question because the answer so often seems glib and repetitious. But the essence does not change and will not change. The government needs to infuse the economy with confidence, and business needs to capitalise on that confidence and invest. Those are the brute facts of life, and there are no short cuts or magic formulas. In a perverse way, at least we know now what not to do. Initiating a totally unnecessary political crisis, increasing policy uncertainty, adopting anti-investment policies — well, they really don’t help.
And by now, please, we should all know that.