The South African Reserve Bank (Sarb) has cited high residential rent as one of the key elements that have kept the Western Cape’s inflation rate afloat despite the lag in the agricultural sector brought on by one of the worst droughts in the province’s history.
This is according to Jean-Francois Mercier, lead economist at the Sarb’s economic and research statistics department, who gave an outlook of the bank’s recently released monetary policy review in Cape Town this week.
Mercier was part of the Sarb’s monetary policy forum team led by deputy governor Francois Groepe.
When giving an outlook of the Western Cape’s provincial inflation rate compared with the national average, Mercier said the province seemed to be on top. One of the reasons for this was that residential rental rates had tended to rise more in the province over the past few years, while there was a slowdown in national rental inflation over the past few quarters.
“Of course, something which is on the mind of many people is the impact of the drought on the Western Cape economy. It would be difficult to get recent data because if you look at the regional gross domestic product statistics and the split that is done by Statistics SA for the different sectors, we only have figures until 2016.
“It is interesting to see that historically the annual real growth in agriculture does not vary that much between the national levels and the Western Cape levels.”
He said in 2015/16 when the drought was more pronounced in the maize-growing regions and in the Western Cape, agriculture proved to be resilient although it experienced a contraction.
“Most probable were the figures for 2016 which came up for the Western Cape – you would not see that rebound. In more real time… if you look at the total agricultural employment for our economy, there was a rebound in 2015, with stabilisation and high levels within the Western Cape.
“Clearly there has been some deterioration. So most probably there has been some drag on recent provincial GDP.”
Mercier said when it came to the overall economy of the Western Cape, it had made an important impact on the national economy because it comprised more than 13% of national GDP for 2016. He said it was the third-largest, behind Gauteng and KwaZulu-Natal, but if this was compared to nationwide growth, it could be seen that the cyclical diversion of the Western Cape growth was minimal.
“Provinces do not escape the national recession and accelerate when the overall economy accelerates. I gave you some bad news on inflation, I can give you some better news on growth. We can see the Western Cape economy (has been) growing faster than the national average for most of the past decade.”