GDP, CPI and other useful acronyms …
South Africa’s “GDP” ended lower in June 2022 [2nd quarter] than it was at the end of 2019 [4th quarter] before “COVID–9” [“bC” … not to be confused with “BC”] came along and really messed things up!
GDP stands for Gross Domestic Product expressed as the market value of all goods and services produced within a country during a specific period. The formula used to determine GDP is C + G + I + NX = GDP which doesn’t help much until we do a bit more unpacking …
C = Consumer spending; G = Government spending;
I = Investment by business [capital spending]; and NX = The countries Net eXports [which would be a positive value if more was exported than imported – or a negative value the other way round].
Then – instead of bandying about big numbers (which are a challenge to read out 😉 – they boil it all down to a percentage comparison of what’s gone up and what’s come down …
Our GDP declined by 0.7% in the second quarter and the impact of electricity “rationing” is clear for all to see. It is impossible to grow an economy without an abundant supply of reasonably priced electricity. Those of us who travel on the N3 any time of day or night may be bewildered by data showing declining economic growth while our daily battle with columns of trucks seems to have no end in sight. We experience that 2.4% tick up in Transport, storage and communication more than most! This chart tells a different story …
Almost 40% of our “value added” lies in Finance and Personal services – not much tangible stuff there – and likely even less in the 9% of Government (they certainly know how to spend – but not sure about the “value add”?]. What is surprising is the relatively minor roles that Mining [8%] and Agriculture [5%] play in our economy these days. These two sectors have seen the highest levels of Government intervention- Agricultural Land subjected to redistribution and Mineral rights taken over by the State.
Then there’s CPI to add to the acronym conundrum. Here the prices of a pre-determined basket of goods and services are measured monthly and the percentage increase is published as the rate of inflation.
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In December 2019 bC our inflation rate was 4.0% compared with the 7.4% we reached by end June 2022. At first it might seem that a rapidly rising CPI rate should be good for a country’s GDP – after all the latter is a measure of the increases in market values [prices]. Our GDP should be increasing and the King of the GDP equations should be Zimbabwe with its inflation rate of 457% per annum – right? No such luck – that would be cheating – so GDP is adjusted to exclude inflation … hence the term “Real GDP” in the charts on page 1.
Deflection – a useful breather …
Hopefully by now – we will have distracted you from the usual media onslaught of Doom & Gloom, Wars, Insurrections, Factionalism etc … and taken you on educational trip [or brief recap for those already in the know] to unpack some acronyms which are put out quarterly and/or monthly. We do have to earn our keep however – so back to the investment markets … with another interesting picture …
This one might not be so easy to read – but its purpose is to demonstrate how important it is to have a meaningful spread of the different asset classes in your long-term investment portfolios. You will notice by observing the colours, how the different classes swap around from one year to the next in the left hand columns – but also on the right how over the longer term [5 through to 15 years] – the traditionally “riskier” asset classes carry the best returns. The term “Balanced” refers to those multi-asset class funds which include most if not all the classes – but are generally weighted more towards Equity than any other asset class.
We are starting to see improved valuations – but believe it will take some time before markets settle into more predictable territory. Patience remains a valuable virtue. Please pop in for a chat or give us a call if you need some reassurance or have a change in your financial circumstances.
Warm regards
Finlaw Consulting
