Publications
Partners
Cape Town - Despite South Africans’ unhappiness with prevailing economic conditions, spirits are still higher than during previous economic crises, according to KPMG’s latest Economic Misery Index.
The index – which measures things people would like to see less of versus things they want more of – is not as bad as in recent history. For example, sentiments were much lower during the 1991-94 political transition, the 1997-98 Asian financial crisis, the 2001 bursting of the dot-com bubble, and the 2007-08 financial crisis.
South Africa’s Economic Misery Index is based on the Misery Index developed by Professor Steve Hanke of the Washington-based Cato Institute.
This index is calculated by adding the unemployment rate, consumer price inflation and interest rates, and subtracting the real change in GDP per capita. The resulting index captures three factors that people would like to see less of: unemployment, inflation and interest rates; and one thing they want more of: higher real GDP per capita.
READ: SA rated the third most miserable place on earth - index
Using annual averages for these four indicators, the results indicate that although the levels of economic misery in the country have been broadly increasing since 2011, they have been worse in recent history.
The South African economy has apparently ground to a halt, with the South African Reserve Bank (Sarb) expecting 0% growth during 2016. The narrowly defined unemployment rate registered 26.7% during the first quarter of the year – the highest in more than a decade – and consumer price inflation was high enough to convince the Sarb to lift interest rates by 75 basis points in the year so far. Rating agencies are also contemplating removing the country’s investment-grade sovereign rating, KPMG said.
South Africa’s Economic Misery Index was at its lowest during 2004-06. Strong levels of overall economic growth resulted in real GDP per capita rising by an average of 3.7% per year during this period. Inflation averaged just 3.1% during the three-year period and unemployment was trending lower. The Bureau for Economics Research’s assessment of consumer confidence at the time was the highest since measurements started in 1982.
During the 2007-08 global financial crisis, South Africa’s Economic Misery Index increased to its highest level since the bursting of the dot-com bubble in 2001.
In 2008, consumer price inflation increased to an average of 11.5%, which led to a prime interest rate hike by an average of more than three percentage points compared to the previous year. Real GDP per capita increased by only 1.9% from an average of 3.8% during the previous four years.
“Last year, South Africa’s Economic Misery Index was measured at 38.2 compared to an average of 39.1 seen in the previous decade,” KPMG said. “Average inflation of 4.6% was the lowest since 2010 though the prime interest rate increased by 1.5 percentage points during 2015. Real GDP per capita increased by only 0.3% – the lowest since the 2009 recession – as the gains of (weak) economic growth were confronted with population growth.”
Against the backdrop of weak performance of the South African economy so far in 2016 and forecasts for economic data during the second half of the year, the Economic Misery Index is expected to rise to a seven-year high reading of 41.3 for the 2016 calendar year.
For 2017, economists expect a slight moderation in inflation and positive growth in real GDP per capita. This should bring down the index to around 40.5 during 2017. KPMG points out Economic Misery Index excludes the direct impact of the country’s political climate on the economy.
“This is something that is a significant factor in South Africans’ moods at present.”
The municipal elections held in August have led to uncertainty about the coalition governments and service delivery in the next five years. “This adds another layer of political uncertainty to the local economy,” KPMG said.
