By Cees Bruggemans
The year 2012 started on a hopeful note, with especially public infrastructure spending offering some reason for a further mild GDP growth acceleration.
It was generally expected that household consumption spending would be slower in 2012, with higher inflation and slower nominal wage gains eroding real income gains.
But this was expected to be neutralized by faster state spending, especially on infrastructure.
In the event, the consumer slowing did materialize, but public infrastructure spending continued to disappoint.
More importantly, a major new disturbing factor arose alongside the usual supplyside strictures restraining growth in recent years, such as electricity shortages, constrained credit supply, limited export rail capacity and technical manpower limitations in the public sector.
Labour unrest and strike action has been on the rise since 2005. It limited GDP growth in 2010 when the public sector servants struck, last year there was industrial unrest leading to output losses, but all that paled somewhat next to the mining unrest this year.
Substantial mining output losses were recorded in 1Q 2012 and 3Q 2012, with 4Q 2012 probably also still suffering production weakness.
All of this has tended to have an intimidating impact on private business expectations, with business confidence remaining disappointingly low, and very limited appetite for capacity expansion being shown as private fixed investment grew less than 2% in 2012.
It didn’t help that the world economy also disappointed in 2012, slowing down anew, with the US barely achieving 1.5% growth, Europe entering recession (mild in places like Germany, where GDP growth fluctuated around the zero mark, but stark in Greece where GDP has been falling for six years and is now 25% below its peak).
Asia didn’t escape the disappointingly slow Western growth performance, finding its industrial export growth weakening, and this in turn eating into its own GDP growth performance (China slowing towards 8%, but India and some of the other South East Asian ‘tigers’ experiencing a much more pronounced slowing).
The weakening Asian performance in turn knocked global commodity demand and commodity prices such as iron ore and steel, thus causing export weakness in many EM commodity producers, adding to their domestic woes.
South Africa wasn’t alone on this particular score, although its export disappointment these past three years has been more pronounced than many of its peers.
Bottom line is that instead of lifting GDP growth from 3.1% last year to a more respectable 3.5% this year (more in line with our average growth performance this past century), our GDP growth weakened sufficiently to deliver only just over 2% this year.
This is slow going indeed, considering the disappointing recovery since mid-2009 averaging only about 3% GDP growth. This wasn’t enough to reactivate the many resources that became idled in the short recession of 2008/2009 as business turned much more defensive, given global crises and our own political drift and lack of a proactive policy framework boosting growth prospects.
There remains substantial unemployed formal sector labour of at least 0.5 million, office building vacancies remain over 10%, the building trades are operating only at about half ‘normal’ output, the civil construction sector has yet to recover after the 30% recession falloff in activity, and manufacturing capacity utilization still hovers only around 80%.
Most of these growth restraints are expected to remain drag anchors in 2013, ensuring another subpar GDP growth performance of at most 2.5%-3%, and this still likely to continue in 2014 as well before the pace picks up a bit. *Bruggemans is Chief Economist at FNB