South Africa’s new GDP figures and why they matter

 Stats SA released South Africa’s latest gross domestic product (GDP) number on Tuesday, 9 March. It showed the country’s economy contracted by seven per cent over the whole of 2020, despite an uptick in the third and fourth quarter. The damage was during the extensive lockdowns in the first part of last year.

This dip grabbed the headlines last year because it was the biggest annual dip since the end of World War II and the second biggest since 1992 when the economic downturn was 2.1 per cent.

To put that into perspective, South Africa’s economy shrank by 1.5 per cent in 2009 amid the 2008/09 global financial crisis.

But Stats SA usually releases many other figures alongside the GDP numbers. Let’s have a look at some of these numbers and see what they mean.

What is GDP?

The GDP is the goods and services a country produces within a certain time period, including earnings from abroad.

Most of the time we look at the change in GDP from one quarter to the next, but other time frames are also used sometimes to get a better picture of what is happening, especially as we enter the foggy future we find ourselves in because of the Covid-19 pandemic.

But which GDP figures are we talking about?

For those of you who might have picked up an economics textbook before, you might be asking if we are talking about real, nominal or actual GDP.

The minus seven per cent contraction in GDP refers to what is called the real GDP. The economy, just like us, is products of our time. This means when economists look at GDP, they also take into account other factors to give a better indication of what is going on. One of these major factors is inflation.

Simply put, inflation is when the money supply rises and prices rise. For example, if the South African Reserve Bank prints R1-billion today and puts it into circulation, it means there is more money available. To make up for this shift in supply and demand, stores might hike their prices to keep up with what is happening in the economy. That is why R10 in your wallet today will buy you less in a year from now.

So, the next time you reminisce about when you paid R5 for Coca-Cola, blame inflation.

Economists have to take inflation and other factors into account to show us what is really happening. Nominal GDP only gives us the number itself without giving us the context of inflation.

What is GDP per capita?

The term per capita means per person, so GDP per capita is a measure of what a country produced in proportion to the number of citizens we have. In theory, a bigger population should lead to a bigger GDP.

Countries like the USA and China for example are the biggest economies in the world when measured by GDP, but they also have a larger population than South Africa. So, looking at what South Africa produces in relation to its almost 60-million residents versus what the USA (330-million people) or China (1.4-billion) produce gives us a better picture of how wealthy people are in different countries.

What does it all mean to you?

Stats SA released a graph alongside the latest GDP figures that South Africa’s GDP per capita has steadily increased from 2002 to 2008 until it plateaued and dropped off. This means that we have a smaller GDP yet a growing population, so we are effectively poorer. South Africa is not alone in this as the pandemic hammered the world economy with job cuts and even protests in some countries. We have not seen the full extent of the economic impact on Mzansi, but let’s hope we bounce back sooner rather than later.