EDITORIAL: GDP rebound only serves to reinforce need for economic reforms
At last, there’s some positive news to report on SA’s economy after a miserable first half that brought with it a loss of millions of jobs. Unfortunately, the strong recovery posted in the third quarter only tells part of the story, and it’s up to decisions made from now on to determine if it’s a start of a trend.
First, the good news. Third-quarter GDP recorded a rebound of 66.1% on a seasonally adjusted and annualised basis. Of course, the format can produce anomalies during extraordinary times as we are going through now. That was true of the reported 51.7% drop in the second quarter, sparking some debate in academic cycles about the usefulness of the data.
The problem is that the annualised data assumes that the percentage change from one quarter to the next will be maintained for the entire year, which no sensible person could have believed to be the case, given the unprecedented nature of a lockdown.
Therefore it was always guaranteed that, with the economy having since largely opened, the rebound would just be as strong. As is, it has been slightly better than what economists expected. But the telling and more relevant numbers would be those comparing the performance with 2019, and SA is far from being out of the woods.
According to Stats SA, the economy is still 5.8% smaller than it was at the end of 2019 and the only two sectors that have emerged unscathed are agriculture and the government, which were largely spared of lockdown restrictions.
During his presidency, which has been sadly lacking in good economic news, Cyril Ramaphosa has got used to issuing statements lamenting the latest bad number and committing to taking the government on a different path. Unfortunately, this is not the time to celebrate.
Though much improved from the lows in March-April, business and consumer confidence remains weak, reflecting the loss of jobs in the economy that is likely to keep demand constrained. Demand for credit is showing signs of recovery, but from a low base.
And there are other reasons to be cautious.
While for SA the recovery in China has been a bright spot, and may help sustain demand for the commodities the country produces, the rest of the world still faces an uncertain future. Good headlines on vaccines are immediately followed by negative ones on lockdowns and a potentially chaotic Brexit that will be damaging to Europe, traditionally SA’s biggest source of trade, investment and tourists.
The US continues to head the wrong way on the health front and in policy terms is in a state of paralysis as the world waits for the nightmare that is Donald Trump’s administration to be gone. It is not clear whether the toxic politics in the US will derail incoming president Joe Biden’s attempt to change course. It might depend on two reruns in Georgia that may decide if the Democrats also grab the Senate, which would produce a united government that can come together behind the new president’s agenda.
And we have the local constraints that are well known. Social compacting has been one of Ramaphosa’s key phrases since the pandemic broke. He needs to make that count and demonstrate that it can be translated into action that delivers the longed-for economic reforms. It’s all well and good for the social partners to commit to fixing Eskom, and yet still remain fuzzy on the exact details on how to deal with the biggest problem, which is what to do with its R500bn debt.
The government needs to regain the initiative on the public sector wage deal and fiscal consolidation in general, though the actions of the public service & administration department last week don’t inspire confidence. Already, government borrowing for consumption is using up the nation’s savings, crowding out private sector players whose confidence and investment is sorely needed.
As shown by the market’s reaction, with the rand gaining to less than R15/$, the GDP numbers showed a welcome improvement. There’s no need for us to tell Ramaphosa what needs to be done to maintain the momentum. He knows. He just needs to do it.
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