A six percent economic growth rate is not a pipe dream and could be achieved by early in the next decade, an Absa economist said on Wednesday.
John Loos said some economists may be underforecasting and that the six percent ”was a real possibility”.
”As an economist, I get a cold shiver down my spine when I see articles claiming that ‘Economists say six percent growth target is a pipe dream’,” he said.
”I would remind them that the country’s economic performance has regularly surprised on the ‘upside’ in recent years.
”I believe that some may be ‘underforecasting’ again”.
Loos said a possible reason for the underforecasting was that economic forecasts and business plans are often based on past performance.
”With SA’s past performance being dismal for two decades, it is understandable that economists may be prone to underforecasting and businesses may be prone to erring in their planning on the side of caution,” he said.
Economists were quoted in the Business Report newspaper on Wednesday saying that six percent was a ”fantasy” and that South Africa did not have the skills to sustain six percent.
It was said that the drivers that pushed the economy in the mid to late 1990s were no longer in place.
The country received a once-off payment from the financial stabilisation policies created in the second half of the 1990s.
There were questions about high commodity prices, which the South African economy relies on and whether these were sustainable.
Concerns were raised about a lull in emerging market bonds, which have brought large inflows of capital in recent years. Loos said economic growth was being slowed because business people, still wary after interest rate and currency shocks in the past 10 years, are being too cautious.
He said business people were slow to respond to the available opportunities when the economy went through a good patch.
”We are holding back too much in anticipation of the bad times that ‘must surely be on their way’,” Loos said.
”While understandable given all that the economy has been through, this reluctance by many to accept that times may have changed for the better, and to make the most of economic cycles, is probably causing South Africa to underachieve to an extent.”
The current period of rand strength was the ideal opportunity to invest in extra capacity, he said, while the cost of debt was low by historic standards and imported capital equipment was cheap.
”But this depends on whether one believes that the rand’s strengthening trend will last for a considerable period of time or whether economic growth will be higher in the longer term or not. Many still don’t believe that it will.”
A time of rand weakness on the other hand is the opportunity to exploit the effective protection against import competition as well as the increased competitiveness of exports.
In the 1990s a rand weakening sometimes meant an interest rate shock –such as 1998 — which decimated domestic demand for output.
”Cyclical reductions in interest rates were all good and well, but we knew how rapidly they could rise again in those days and this still haunts many business people and influences their decision-making.”
If the government could stay the course on its macroeconomic policies, it could raise the growth performance of the economy substantially in years to come.
Loos said business people would become aware that each stage of the various cycles brings different opportunities and one must move swiftly to exploit them.
”I believe that already, it is this process of ”normalisation” in many people’s expectations that is causing the economy to often outstrip the so-called consensus expectation of the analysts, but the process still has a way to go.” – Sapa