REGIONAL ECONOMIC OUTLOOK: SUB-SAHARAN AFRICA
Box 1.1. Why Has South Africa’s Recovery
from the Recession Been Subdued?
105
100
95
90
This box was prepared by Nir Klein.
20
2010:Q1
2009:Q3
2009:Q1
2008:Q3
2008:Q1
2007:Q1
2010:Q3
25
15
65
10
60
5
2010:Q1
2009:Q1
2008:Q1
2007:Q1
2006:Q1
2005:Q1
2004:Q1
2003:Q1
-5
2002:Q1
0
50
2001:Q1
55
Figure 3. South Africa: The Contribution of
Investment to Real GDP growth
1.0
0.5
0.0
-0.5
Contribution of private investment
-1.0
Sources: South African Reserve Bank (SARB); and
IMF staff calculations.
2010:Q1
2009:Q1
2008:Q1
2007:Q1
Contribution of public investment (including public
enterprises)
-1.5
Year-over-year percent change
30
70
2006:Q1
__________
35
20
2005:Q1
index of consumer confidence showed a
noticeable improvement in 2010:Q1. However,
since then it has deteriorated and remained at a
lower level compared with the level that prevailed
in the precrisis period.
40
75
2004:Q1
Fragile consumer confidence. The composite
80
2003:Q1
x
85
1.5
Job loss and high unemployment. The massive
job shedding that occurred in 2008–09
(equivalent to 8 percent of total employment at
end-2008) during the recession is also going to
constrain future aggregate consumption growth.
Growth of credit to the private sector
(right axis)
Household debt as a percent of
disposable income
90
Source: South African Reserve Bank (SARB).
Percentage points
x
95
Figure 2. South Africa: Household Debt and
the Growth of Credit to the Private Sector
2000:Q1
debt as a share of disposable income increased
substantially in the precrisis period, mainly
reflecting the rapid expansion of mortgage
lending (Figure 2). Currently, at 79 percent of
disposable income, household debt remains high
from a historical perspective, suggesting that
banks are likely to remain cautious in granting
credit and mortgages to households. Additionally,
as interest rates rise over the medium term, the
associated increase in the debt-service cost will
pose an additional constraint to private
consumption.
Sources: IMF, World Economic Outlook; and IMF staff
calculations.
1 The selected EMs include the emerging economies of
the G-20 group apart from China and Saudi Arabia.
Percent of disposable income
High household indebtedness. Household
2007:Q3
85
Accounting for slightly above 60 percent of GDP, private
consumption plays a central role in economic fluctuations.
And indeed private consumption has been an important
driver of both the recession (2008–09) and subsequent
x
Average EMs
110
Constraints on consumption
recovery (2010). In the first three quarters of 2010, private
consumption expanded by some 5 percent reflecting
relatively high real wage increases and higher government
transfers. But going forward, although private
consumption is expected to remain strong, expansion at
the heady levels of the mid-2000s is highly unlikely for the
following reasons:
South Africa
115
Index, 2007:Q1 = 100
South Africa’s recovery from the global financial crisis is
lagging behind that of other emerging markets brethren
(Figure 1). Whereas output gaps in most of these other
cases have closed, there remains a nontrivial gap of some
3 percent in South Africa this year and it is not expected to
close until 2013 at the earliest. South Africa accounts for
30 percent of sub-Saharan Africa’s GDP so developments
there have a large bearing on regional outcomes. This box
considers the factors behind its slow recovery.
120
Figure 1. Real GDP in Selected Emerging
Markets1 (EMs)
2002:Q1
.
1. RECOVERY AND NEW RISKS
Sluggish recovery in private investment
84
20
Change in inventories
-40
Utilization rate in the
manufacturing sector (right axis)
74
2010:Q1
2009:Q1
2008:Q1
2007:Q1
2006:Q1
2005:Q1
2004:Q1
2003:Q1
2002:Q1
72
Source: South African Reserve Bank (SARB).
40
35
Figure 5. South Africa: Change in the Share
of Total Exports of Goods
The share in 2008:Q2
The share in 2010:Q3
30
25
20
15
10
5
0
To
To the To Asia To Africa Other
Europe Americas
Regions
Source: South African Reserve Bank (SARB).
130
Figure 6. Real Effective Exchange Rate in
South Africa and Selected EMs
120
110
100
90
80
Brazil
South Africa
Poland
70
60
Mexico
Turkey
2010:Q4
2010:Q3
2010:Q2
2010:Q1
2009:Q4
2009:Q3
2009:Q2
50
2009:Q1
received substantial amounts of portfolio
inflows. With measured intervention by the
South Africa Reserve Bank (SARB), these
inflows have put upward pressures on the real
effective exchange rate (REER), which has
appreciated since early-2008 by about 25
percent—significantly more than other emerging
markets (Figure 6).
Percent
76
2008:Q4
Loss of competitiveness. South Africa has
78
-20
2008:Q3
x
80
2008:Q2
Africa’s exports fell sharply at the outset of the
financial crisis, external demand has picked up
recently, and exports to some destinations
returned to their precrisis level. To Europe,
however, exports remain weak, reflecting the weak
recovery in the euro area and the sharp
appreciation of the rand against the euro (around
30 percent since end-2008). The latter shows in
the decline of Europe’s share to 26 percent in
total exports of goods from 34 percent on the
eve of the crisis (Figure 5). All in all, the fact that
Europe remains South Africa’s second-largest
trading partner combine d with Europe’s modest
growth trajectory in the foreseeable future limits
the prospects for stronger external demand for
South African products.
82
0
Percent of total exports of goods
Weak demand from Europe. Although South
86
-60
Index, 2008:Q1 = 100
x
88
40
Weak external demand, exacerbated by deterioration of
external competitiveness
In part, the weak GDP growth reflects weak external
demand for South Africa’s goods and services. Although
South Africa’s terms of trade have improved by 18 percent
since end-2008, exports remained below their precrisis level.
This reflects various factors, including
Figure 4. South Africa: Change in Inventory
and Capacity Utilization Rate
2008:Q1
The lack of recovery in private investment may reflect
several factors, including firms’ anticipation that weak
demand conditions will prevail. This perception is
supported by moderate business confidence, which,
although improved in recent months, remains well below
that observed in the precrisis period. The latter translates
to low capacity use in the manufacturing sector and to
firms’ decision to run down their existing stocks instead of
building new inventories (Figure 4).
60
Billions of 2005 rand
The global financial crisis triggered a noticeable decline in
the level of investment, mainly from the private sector.
Since end-2008, private investment has declined by about 2
percentage points of GDP, partly offset by the increase in
public investment. And despite the recovery, the
contribution of private investment to real GDP growth in
2010 was negligible (Figure 3).
Sources: IMF, Statistics Department INS database; and
IMF staff calculations.
21