At this time of year you find opinion posts about the South African economy everywhere: The year ahead! What to expect in 2013! There is speculation about labour unrest, inflationary pressure, and the role that Cyril Ramaphosa will play as new deputy president of the ANC. I don’t want to put more views on the table, but it may be useful to give readers a way to think about all the information that is out there.
At its heart, a Year ahead post is about economic growth prospects and what it implies for […fill in the blank…]. It is here that one has to make a distinction between growth rate and growth potential and sort through the opinion pieces accordingly – it helps to put the news into perspective and to avoid disappointment. Often the two are conflated with the challenges of unemployment, poverty and inequality in an unhelpful way.
What I call growth rate issues are those that relate to GDP growth given the current structure of the economy. If it is business as usual, what are the things that influence whether the economy will growth at rates between 2% and 4%? These are the bulk of what one reads about in the media, and what you want to know about if you are interested in the performance of the markets:
- Whatever happens in the US, Europe, Japan, China will determine whether we grow a little faster or a little slower. It is expected that there will be positive growth in the US, consolidation in the EU, stimulus in Japan and recovery in China. It adds up to mildly positive global prospects giving the SA economy a bit of momentum.
- For the SA economy a lot is being and will be written about changes in household income and spending (reasonable growth expected), fixed investment (resilient, building recovery?) and government spending (stimulus). There are also opinions out there on the impact of labour unrest and electricity constraints. All of these, however, will only determine whether we grow a little faster or a little slower.
The point is that when you read the latest news about the economy and economists’ views on monetary easing or expansionary fiscal policy, keep in mind that this is at best about the growth rate – a little faster or slower.
If you are concerned about the rate of youth unemployment, or the significant levels of poverty and inequality, the growth rate news will not be of much use. Dealing with these will require growth rates in excess of 6% per annum for an extended period and that will not come from a global recovery, lower interest rates, a weaker rand or more government spending. Now we are in the realm of the fundamental determinants of growth potential, the NDP and other plans beyond 2020. When these are discussed in opinion pieces there is often a bit of disappointment to detect. In the case of the National Growth Path, or the National Development plan, pundits wrote that the proposals are more of the same – didn’t we say all this in the GEAR strategy, or was it ASGI-SA?
My response is that we probably don’t need more plans (and maybe not even more opinion pieces about them). South Africa has a good plan in the NDP and to my mind everybody knows that investment in education and infrastructure is smart. We don’t need to ask: What would good policymakers do? We need to ask, what can we do to make them do it?
Thus, my advice is to take the What to expect in 2013 posts with a good pinch of salt. The question whether the SARB should tighten monetary policy in response to a mid-year peak in inflation at the upper end of the target band, and if that means they can easy rates in the third or fourth quarter, is not relevant to the huge challenges that the economy faces. We need more opinion pieces about how to implement the NDP – political economists, I would love to hear from you!