The problem with South Africa’s economic statistics was much broader than indicated by the Statistics SA fiasco, which involved overstated inflation figures, market commentators said this week.
They added that as the Statistics SA error was a factor in four interest rate hikes last year, it was now clear that a rate cut was overdue.
Figures released by Statistics SA this week — presumably accurate — showed that gross domestic product (GDP) growth in the first quarter of this year slowed to 1,5%, compared to 2,4% in the final quarter of last year. This is the third consecutive quarter of slowing growth.
Statistics SA’s April consumer price index (CPI), due for release on Friday, was subjected to a 10-day delay after the agency was alerted to a possible error in the CPI cal- culation, which could mean it was overstated by as much as 2%.
The error was uncovered by Investec portfolio manager John Stopford, who pointed out that the rental component, which covers rentals for houses, flats and townhouses, might be exaggerated. It was extrapolated from the 1999 October Household Survey. The survey was discontinued partly because of lack of funds. The figure was not appropriately revised and its error of margin became amplified owing to the effect of compound growth. As a result, inflation figures from the beginning of 2002 are overstated.
In pursuit of its CPIX (inflation minus mortage rates) target of 3% to 6%, the Reserve Bank last year raised interest rates four times. Analysts agree, however, that even if last year’s figures had been correctly stated, the Bank would still have raised rates in view of the upward trend in inflation. The CPI currently stands at 12,5%, while CPIX stands at 11,2%. On Friday, these are expected to be revised downwards by as much as 2%.
“There is error in all statistics — there is no perfect statistic in the world,” remarked economist Mike Schussler this week. He acknow-ledged that in the case of inflation data, the possible margin of error warranted a review, but pointed out that “our labour statistics, trade figures and recorded deaths all have problems, yet we do not have press conferences on them”.
He emphasised that the International Monetary Fund has repeatedly criticised South Africa’s labour statistics, recorded principally through Statistics SA’s semi-annual Labour Force Survey and Survey on Employment and Earnings. “In a country with 30% unemployment, you would expect us to improve the six-month delay in disclosing the number of unemployed people.”
Schussler said he would like to see such crucial data reported more frequently — initially every quarter, and eventually monthly, as in the United States.
He also noted the need to improve the frequency and quality of recording of causes of deaths given the HIV/Aids epidemic. Figures were currently released once a year.
Minister of Finance Trevor Manuel has ordered a complete review of Statistics SA’s published work. To be undertaken by the Statistics Council, Statistics SA’s advisory board, the review will also prioritise “necessary releases”, where resources will be devoted to improving quality.
Schussler believed the fuss over the inflation data reflected South Africa’s undue policy emphasis on inflation targeting. “In a country with an unemployment rate higher than that of the United States during the Great Depression, such a focus is criminal,” he fumed.
“Unemployment is at 30% and [CPIX] at 10%. Obviously jobs are a priority.”
South Africa was reminded of the challenge it faces in achieving sufficient growth this week when Statistics SA released first quarter GDP figures and the April producer price index (PPI).
In addition to the steady decline over three quarters, GDP grew by 2,5% on a year-on-year measure, as compared to the last quarter’s year- on-year growth of 3%. Slowing growth is widely attributed to the poor state of the world economy, the strength of the rand and high interest rates.
Another indication that inflation is slowing came from the PPI, which was found to have risen 3,3% in the year to April, compared to 5,1% in the year to March.
This week analysts cited the two sets of figures in urging a rate cut at next month’s Monetary Policy Committee meeting, with some even calling for cut of 2%.
“This weakness [in the economy] will not just go away,” Rand Merchant Bank economist Rudolf Gouws told the Mail &Guardian this week. Gouws said he expected the second quarter to show “moderate, further weakening” before growth picked up in the last two quarters.
A reprieve would, however, not come from the global economy. Gouws noted: “There are still a thousand question marks over the American economy. Europe will not pick up soon and Japan will suffer for a long time to come.”
He predicted growth of 2,3% this year, rising to around 3% in 2004.
The economy would heal itself from within, with “substantially lower” interest rates and inflation.
Gouws expected a 100 basis point (1%) reduction in the repo rate in June. Schussler was more pessimistic, declaring growth would not touch 2% this year. He also expected a percentage point rate cut because “central banks with an inflation- targeting policy tend to be conser-vative, and do not act as quickly as everyone would like them to”.
From June, Schussler said he expected interest rates to embark on a downward slide, even going below the 13% prime rate they reached in November 2001, ahead of the rand’s crash.
“I would put my head on the block and say in two years we will have a prime rate of 10%.” The repo rate currently stands at 13, 5% and prime at 17%.
Given that growth would not create jobs in the short term, Schussler said the best way to create employment was a “huge, coordinated public works programme” financed through a combination of loans from the World Bank and aid.
Such a programme would not have to involve “digging holes and filling them up again”, as unions tended to suggest. “The time for that is gone,” he said. It could, for instance, put in place infrastructure like roads and hotels that would make more of South Africa accessible to tourists and strengthen ancillary industries like crafts.