GDP decline: how to turn SA's ship around

GDP decline: how to turn SA’s ship around

2021-12-08 06:16:00 PM

GDP decline: how to turn SA’s ship around

There are a few things South Africa can do to stop the decline and salvage the sinking economy.

South Africa’s gross domestic product (GDP) decline is not surprising and the big question on everyone's lips is how will the country reverse its fortunes? With more repo rate increases and forecast downgrades looming, South Africa needs a plan fast, especially since this is the fourth time during President Cyril Ramaphosa’s term that GDP has decreased, the worst performance ever since 1990. Economist Mike Schűssler says he was not at all surprised by the decrease in GDP as more than one set of indicators indicated that the economy was in decline. “After the riots and unrest in KwaZulu-Natal and Gauteng...

South Africa’s gross domestic product (GDP) decline is not surprising and the big question on everyone’s lips is how will the country reverse its fortunes?With more repo rate increases and forecast downgrades looming, South Africa needs a plan fast, especially since this is the fourth time during President Cyril Ramaphosa’s term that GDP has decreased, the worst performance ever since 1990.

Economist Mike Schűssler says he was not at all surprised by the decrease in GDP as more than one set of indicators indicated that the economy was in decline.“After the riots and unrest in KwaZulu-Natal and Gauteng it was clear that retail trade, car sales and manufacturing would decline in the third quarter. It is clear that load shedding also did not help.” headtopics.com

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ALSO READ:SA’s GDP shedding another 1.5% bad news for all, dashes hope for recoveryGDP decline sending us over the edge of the fiscal cliff?He says there have been many signs of the country going over the edge of the fiscal cliff, but we have been lucky so far this year with extra tax income from the commodity boom, which is still there, but has lost legs as the commodity prices seem to have peaked.

“The fiscal cliff will become clearer six or nine months after the boom is over, which is bound to happen although we do not know when.”What can we do to get the GDP up again? Schűssler says at present, government must implement law and order.“We need the state capture lot to be arrested, as well as the July looters, the construction mafia, truck mafia and truck blockers. Government must hold their own to account, such as the people involved in the Covid scandals.”

He also says cable thieves and people who destroy infrastructure should be arrested with those who buy the stolen goods, as well as police and other law enforcement officials who take bribes.ALSO READ:What government can do to stop GDP declineHis other advice for government includes:

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Free up the harbours and railways as promised to other private operators.Fix Eskom as soon as possible, as well as Transnet and Passenger Rail Agency of South Africa (Prasa).Fully privatise Denel and South African Airways (SAA), and split Airports Company South Africa (ACSA) into regions and give it to regional government to run. headtopics.com

Make the South African Customs Union (SACU) a one visa zone and implement one-stop border posts open 24/7.Reduce red tape.Free up the digital airways and give operators the frequencies they need.Allow more radio and TV stations when we go digital.Build the roads and dams we need.

Stop BEE rent seeking and make it fair and less difficult to dismiss workers.Fix the education system up to tertiary level.Acknowledge that we need to transform to a more private sector economy.Bring down the government wage bill by not adjusting salaries for inflation and improve service delivery with more frontline teachers, health care workers and law enforcement officers, while reducing back room or administrative staff.

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Implement a bonus system that rewards hard work, implementation and success.Stop all strikes and send labour disputes to arbitration after a maximum of two weeks and do not allow the same union in the same sector to strike again for at least the next year.

Schűssler believes the fourth quarter will be flat to negative due to load shedding.“Truck blockades also ate some of the growth in the fourth quarter, while water outages in Johannesburg and other areas hurt food production and other manufacturing.”ALSO READ: headtopics.com

Lesson for SA: Red flags that signal a country’s pending fiscal doomGDP decline partly due to unrestEconomic research group Oxford Economics Africa says it forecast of a decline in GDP of -1.3% was not far off the mark, with growth in total economic output on an annual basis moderated from a revised 19.1% in the second quarter of the year to 2.9% most recently.

“Six industries recorded negative growth and as expected the main laggards between July and September were the industries for trade (-5.5% compared to the previous quarter, contributing -0.7 ppt), manufacturing (-4.2%, contributing -0.5 ppt) and agriculture (-13.6%, contributing -0.4 ppt).

“The unrest in KwaZulu-Natal and Gauteng erased the positive momentum seen earlier, while a decrease in the production of field crops and animal products is responsible for the slump in the agricultural sector.”The third-quarter national accounts data was slightly weaker than expected and the breakdown makes for sombre reading, but given the most recent developments, the backward-looking data is largely obsolete at this stage.

ALSO READ:First quarter GDP decreases by 2%Expectations and surprisesCarmen Nel, economist and macro strategist at Matrix Fund Managers says if we exclude agriculture, GDP contracted by 1.1% during the third quarter.“Much of the drag came from a 13.6% quarter on quarter slump in the volatile agriculture component, which was in contrast to high-frequency agriculture data and confidence surveys that point to relatively robust growth in the sector.”

She says while the headline number was a negative surprise, the markets did not react strongly to the release, with both the rand and bonds trading stronger into early afternoon trade.“The underlying detail was also not quite as alarming as the headline number.

“Relative to our expectations, growth in utilities, construction, financial, real estate and business services and personal services positively surprised, while the negative surprises were limited to agriculture, manufacturing and trade. On the demand side, the drag on growth came mainly from household consumption expenditure and exports.”

ALSO READ:Failure to pass expropriation bill bound to have economic implicationsGDP expectationsNel also expects the SA Reserve Bank will continue hiking the repo rate as the Monetary Policy Committee focuses increasingly on upside inflation risks, particularly related to vulnerabilities to the exchange rate.

Oxford Economics Africa says its initial expectation was for a stronger end to the year, but the picture continues to change. In October a three-week worker strike in the steel industry is likely to have impacted negatively on manufacturing, while there was also an increase in port delays and the return of more intense and frequent power outages.

“The Omicron variant added fresh uncertainty by precipitating bans against travellers from South Africa and the sudden cancellations by foreign tourists will hurt an already struggling tourism industry.”The risk of more stringent restrictions has increased and even just heightened concern of tighter measures will weigh on economic activity. “Although the economic impact of Omicron has so far been fairly limited we are wary that conditions could change quickly.

“Depending on the severity of the fourth wave, the economy could start 2022 on a softer footing. A downward revision of our first quarter real GDP forecast for 2022 is looking increasingly likely and overall we now expect the economy to expand by 4.7% this year and grow by 1.7% in 2022.”

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