Money and Markets

The latest GDP number is a shocker. It may also be wrong.

Business Insider SA
Quarterly GDP growth (%). Statistics SA
  • The GDP number for the first quarter of 2018 shows the South African economy shrank by more than 2%.
  • But revisions are still expected, which could make all the difference. 
  • Research shows GDP revisions can be substantial – it erased an entire recession in 2016/2017.

The GDP number for the first quarter of 2018 was a shocker: it showed the South African economy shrank by 2.2%.

The number is crucial – it can determine everything from interest rates to government investment.

It may also be wrong.

“It may be that the revised number, which will be released in the next months, will look much different,” says Professor Corné van Walbeek from the School of Economics at the University of Cape Town.

A decade ago, Van Walbeek did extensive research, which spanned 20 years, into the accuracy of GDP numbers.

“The results were quite distressing. The GDP growth numbers are restated and revised to the extent that, once the data has finally settled down (when everyone has forgotten), they could be quite different from the initial releases.”

For Statistics SA to get the initial GDP growth rate out in time, it is based on data not yet finalised.

“There is a trade-off between accuracy and getting the number out as soon as possible,” says Van Walbeek.

In a 20-year time period, he found there were forty revisions to the GDP number. Only seven of these were to the downside; most revisions bumped up the number. 

More recently, South Africa was told it was suffering a recession in 2016/2017. But, on revision, it turned out that the initial GDP data was wrong and the recession never happened, reports Bloomberg.

“For now, it may mean that everyone is making a big fuss that South Africa may be on the edge of a recession, while this may not be the case,” says Van Walbeek.

In the first quarter of 2018, the GDP downturn was amplified by the sharp 24% fall in agriculture – which is in fact a very small part (below 5%) of the economy. Due to seasonality, agriculture is a very volatile number. 

Hugo Pienaar, senior economist at the Bureau for Economic Research at Stellenbosch University, agrees that a revision is possible.

“Recently, we have seen quite material revisions.”

But he says that this is not unique to South Africa. In the US, there are three GDP revisions per quarter and from time to time, these numbers can jump around.

“While (South Africa’s) first quarter GDP number is bad, a contraction was generally expected, so we don’t think the number should necessarily be questioned.”

A Statistics SA spokesperson told Business Insider South Africa that the figures for the fourth quarter of 2017 “have not yet been revised”. 

“In line with the historical revision practice as well as international best practices, the first set of GDP estimates are preliminary and are subject to revisions as they are compiled for a large set of short-term indicators.

“Therefore the GDP estimates are routinely revised to incorporate revised short term indicators as well as annually to incorporate detailed and audited financial records which are not available in time for the compilation of the quarterly estimates. These records are available only after a couple of months after the financial year ends of many companies in the South African economy,” the spokesperson said.

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