By Lehlohonolo Lehana.
The financial consultants at PwC highlights that the main economic indicator we rely on – Gross Domestic Product (GDP) – does not provide a complete picture of the economic welfare of a country and its citizens.
On June 6, Statistics South Africa (Stats SA) will publish gross domestic product (GDP) data for the first quarter of 2023.
According to PwC’s latest South African Economic Outlook for May, GDP, while the most widely used economic indicator, is not necessarily the most useful.
GDP is an estimated figure based on the output of a country’s industries. It is the standard for measuring economic growth and used by policymakers, businesses and individuals to make decisions about everything – from investment to government policy.
However, PwC said that GDP is as notable for what it does not measure.
“Notwithstanding its frequent application, GDP faces many shortcomings, with detractors saying it is outdated for modern societal needs in measuring prosperity and progress.” the group said.
Notably, GDP does not account for things like income distribution or income inequality – so even a country with a high GDP per capita can have significant portions of its population living in poverty.
GDP also ignores environmental and social costs of production – such as resource depletion or social ills. As such it does not reflect the quality of life in a country, and excludes the impact of externalities like pollution, education, etc.
The figure also completely ignores unpaid work – such as care work, household work and other social work, which has major contributions to a country outside of monetary gain and production. The figure is extremely biased towards large corporations, and the informal sector goes under- or unrepresented.
Simply put: GDP does not tell the whole story.
In 2022, South Africa ranked 32nd in the world for its overall GDP – yet the country faces a multitude of crises: unacceptably high levels of unemployment, near permanent load shedding, growing levels of poverty, crumbling infrastructure, water shortages, etc.
“One of the key reasons why GDP is such an enduring feature of economic analysis is the frequency at which it is measured. While mostly released on a quarterly basis, the component parts of GDP calculations are frequently available on at least a monthly basis,” PwC said.
“This enables frequent updates to data that directly reflect the economic situation. This is also a big challenge to alternative measurements of economic prosperity: many good alternatives exist but are often only published on an annual basis — and frequently with time lags.”