What's good news to Stats SA will be only partially good to us
May 24, 2004
By Patrick Lawlor
All of a sudden, we are told, the economy has not been as sluggish as we thought. The meter has been a little faulty and we have actually been travelling a lot faster than we thought, according to Statistics South Africa.
So we can expect a much stronger showing in the first-quarter gross domestic product (GDP) numbers when they come out tomorrow, well up on the 1.9 percent for 2003.
Happy days. Or, to quote the old politicians' saying, you've never had it so good.
Forgive me for not getting too enthusiastic about things. Given the demands of the economy - high unemployment, high levels of HIV/Aids, lots of low-tech industries and government demands for business to transform itself to be more representative of the nation's demographics - there are many reasons why even a 4 percent growth rate is probably insufficient.
Still, it is a relief that the yawning gap between the required (probably about 6 percent) and actual growth rates is not as big as it was. To make up the shortfall, South Africa will need a more enlightened economic policy framework from the government and significantly lower interest rates.
The latter will be based on the Reserve Bank's reading of the inflation data that comes through during the rest of the week.
On Wednesday, consumer price data for April are released, as well as the CPIX data that the bank uses to set interest rates. Not unlike the GDP picture, the inflation picture has started to look happier than it did a few months ago. CPIX came in at 4.4 percent for the 12 months to March, within the target range of 3 percent and 6 percent.
Yet the oil price is doing its best to upset things. A hike in pump prices in April by 22c a litre will have put some pressure on month-on-month inflation, and we can expect a few more similar hikes in the months ahead.
Most of the economists who make a living from analysing these things have the increase in CPIX at significantly below 1 percent month on month. And there seems to be a prevailing view that oil prices will not stay very high for long.
Equally, producer prices, due out for release on Thursday, have been in decline, meaning that price pressure on the factory floor is practically non-existent. The producer price index fell 1.2 percent in the 12 months to March and the figure is likely to stay negative in April.
So we can rule out a rate hike in the very near future. Again, though, like the good news on GDP, this is only partially good news. Structurally high interest rates remain the norm in South Africa and will stay so until early next year, when the bank will in all likelihood, er, make them even higher (or so some economists tell us).
By then, so the argument goes, most of the world's central banks will be in a tightening mood. The US will probably have hiked rates, while Europe and the UK will have hiked them some more. China will also be doing its bit to cool its overheating economy.
Global growth should still be quite robust, but our monetary authorities may feel the need to hike rates to keep up with global trends - or, to put it another way, to keep the interest rate differential high enough to keep attracting foreign funds and keep the rand firm.
Would this be a mistake? Staunch monetarists will maintain that rates need to be high to kill the inflation beast for good, at the very least while fuel prices remain high.
The alternative view is that South Africa needs more growth, not less, and that inflation and growth problems in South Africa are largely structural.
Lower interest rates, even if they mean a cheaper rand, would do the economy more good than harm.
So far, the Reserve Bank has stayed in the former camp and is unlikely to change anytime soon.
|
|
