"Statistics SA announced today that the economy declined by 1,5% in the third quarter of this year after it was already decided in the second quarter to no longer annualise the quarterly growth figures (multiplied by four) to give an indication of the expected annual growth rate.
The rate is, however, still misleading to project an annual rate with because the growth figures for the third quarter were still compared to the second quarter of this year and not to the same quarter last year,” says Fanie Brink, an independent agricultural economist.
Some economists and most asset managers, as well as the Reserve Bank, have, in any case, annualised the initial growth rate of 1,2% for the second quarter of this year to project an annual growth rate of 4,8% for 2021 which was further adjusted to an average growth rate of 5%.
This growth rate has been proclaimed as the official growth rate by various asset managers and other financial advisers to persuade domestic and foreign investors that South Africa is a great place to invest more capital in order to protect their “bottom line.” While the Reserve Bank has proclaimed it to try to prove that its ridiculous interest rate policy can stimulate economic growth which is the single biggest delusion in economic science!
It means, in fact, that the growth rate for the third quarter has not only declined by 1,5% but by a projected annual growth rate of 6% for 2021 if it was also annualised as for the previous quarter.
Both the projected growth rates of 5% based on the growth figures for the second quarter and the -6% based on the growth figures for the third quarter are in fact incorrect because these quarters were compared with the previous quarters and not with the same quarters of last year, as well as because the quarterly growth figures have been annualised and adjusted for seasonal fluctuations which in both cases are not necessary and incorrect
The question now is how will most asset managers and other financial advisers persuade local and foreign investors to continue investing further in South Africa with its destructed economy?
It is, therefore, very unfortunate that Statistics SA's incorrect quarterly growth figures still give rise to these incorrect growth projections as its calculation method is still incorrect because it once again compared the third quarter with the second quarter this year and not the same quarter last year in which case the third quarter would have grown by 2,9%.
The fact that Statistics SA has also calculated the correct growth figures since the second quarter by comparing each quarter with the same quarter of the previous year which will be the only correct expected annual rate at that stage as the economy cannot function with the different results of different calculation methods.
The lower economic growth rate for the third quarter this year was the consequence of the devastating economic unrest and looting in Kwa-Zulu Natal and Gauteng, along with the rise in unemployment that has hampered private consumption expenditure on the demand side of the economy. The weak business confidence and the persistent electricity shortages have also significantly weakened economic growth for the third quarter.
Although some economists and most asset managers, as well as the Reserve Bank, accept the growth figures of Statistics SA that compare the quarterly growth figures with the growth figures of the previous quarters, it is interesting, but also misleading, that they also accept the comparison with the growth figures for same quarters of the previous year to motivate an annual growth rate for 2021.
At the end of this year, the correct growth rate for 2021 will be determined by comparing the growth figures of the four quarters this year with the growth figures of the same four quarters last year, in which the comparison of the growth figures for this year's four quarters with the preceding quarters will not play any role. It can by no means be used as an indication of the growth rate that can be expected for 2021.
The average growth rate for the first three quarters of this year compared to the same three quarters last year was according to Statistics SA 5,8% is at this stage the best indication of the expected growth rate for this year depending on the economic performance of the last quarter of this year.
A much better growth rate can be expected for this year mainly due to the very negative impact of the Covid-9 pandemic which was largely responsible for a contraction of the economy by 6% last year.
The quarters in the same year are by no means comparable. If each quarter were to be compared with the same quarter of the previous year, it would, in any case, be an annual growth rate which does not have to be annualised and adjusted for seasonal fluctuations because it also compares more or less the same “seasons” with each other.
The large decline in the growth rate of the agricultural industry of 13,6% can largely be attributed to the calculation of Statistics SA which compared the third quarter with the second quarter of this year because based on the average 58% of the second largest maize crop in the history of 16,3 million tonnes were harvested and delivered to the silos in the second quarter compared to only 3% in the third quarter which inevitably had a negative impact on the growth performance of the agricultural industry in the third quarter. If the third quarter of this year was compared to the same quarter last year, the production of maize would have largely reduced the decline in the growth rate of the industry in the third quarter to just 3,1%.
Local and foreign investors wishing to make further capital investments in South Africa will have to think very carefully about the economic risks that have become excessively high. Not only because of the third quarter's negative economic growth rate but because of the systematic dismantling of the economy by the ANC government's destructive socialist ideology that has taken place over almost three decades that will destroy everything further by 2024/25.
Fanie Brink, Independent Agricultural Economist
The publication of Statistics SA for the third quarter can be downloaded at the following link:
http://www.statssa.gov.za/publications/P0441/P04413rdQuarter2021.pdf
