Why did the Treasury get 2011 GDP so wrong?
Real GDP as measured from the expenditure side grew by 4.0% in 2011.
By Helmo Preuss
The data released in the South African Reserve Bank's (SARB) latest Quarterly Bulletin on Monday showed that real gross domestic product (GDP) as measured from the expenditure side grew by 4.0% in 2011, yet the Treasury (and many other economists/organisations) only forecast a 3.1% rise as late as last month.
If we look at the GDP components we see that the Treasury forecasts given in the February 2012 Budget were in fact very close with real household consumption expenditure growth forecast at 4.9% versus an actual 5.0%, government consumption expenditure at 4.6% versus and actual 4.5%, gross fixed capital formation at 4.3% versus an actual 4.4% and gross domestic expenditure at 4.1% versus and actual 4.3%.
Business Unity SA forecast for 2011 for household consumption expenditure was 4.0% and for gross fixed capital formation was 2.3%.
Even the volatile foreign trade sector saw very close forecasts by Treasury with export growth at 6.0% versus an actual 5.9%, while import growth was forecast at 9.4% versus an actual 9.7%.
The answer for the nearly 1 percentage point miss must therefore lie with the GDP components that the Treasury do not disclose, namely the change in inventories and the residual.
These two items added respectively 0.3 and 0.8 percentage points to GDP growth in 2011, so the questions is whether they will cause a similar miss to this year's GDP forecast of 2.7%.
As the ratio of inventories to GDP was only 12.2% in 2011 compared with a recent peak of 17.3% in 2007, there is a good chance that the miss caused by the change in inventories will be double last year's.
That is likely to be offset by a smaller positive change in the residual as there was a R16 billion (constant 2005 prices) swing in the residual between 2010 and 2011.
This would seem to indicate that we could see real GDP growth this year closer to 3.5% rather than the Treasury forecast of 2.7%, but that also depends on what happens in the eurozone.
The global economy has stepped back from the brink of danger and signs of stabilization are emerging from the eurozone and the US, but high debt levels in developed markets and rising oil prices are key risks ahead, the International Monetary Fund (IMF) said.
"The global economy may be on a path to recovery, but there is not a great deal of room for manoeuvre and no room for policy mistakes," IMF Managing Director, Christine Lagarde, said in Beijing on Sunday.