the 2008 - 09 global recession with a slight delay, but more or less at the same time as most of the world ’ s largest economies. such cyclical patterns are largely unavoidable, and the best that macroeconomic policy can do is to limit their magnitude and hence their potential distortionary effects. what is worrying, however, is that while the gap between south african and world growth hovered at around zero just before and during the global recession, this growth gap has gradually widened ever since. it has averaged 1. 8 percentage points in the last five years, stood at 2. 9 in 2016, and – based on the imf ’ s and the sarb ’ s forecasts – could increase to 3. 0 in the current year. a similar observation arises when page 3 of 11 comparing south africa to its upper - middle - income peers4 : in 2002 - 07, domestic growth was, on average, 0. 4 percentage points below this group ’ s median ; last year, the gap had widened to 2. 5 percentage points. not ‘ a traditional recession ’ but ‘ a slow grind to a halt ’ how can we explain this lacklustre performance of the south african economy? and how can we explain its underperformance versus its peers? in many ways, the downturn of the past few years does not display the traditional characteristics of a recession. for example, there was no build - up of inflationary pressures that necessitated the shift to a restrictive, demand - constraining monetary policy. inflation has displayed a rising trend since 2011, resulting in the monetary policy committee of the sarb raising the repurchase rate by 200 basis points between january 2014 and march 2016. but by our own, admittedly imprecise, calculations, the real interest rate remained below its neutral level for most of that period. this would suggest that while monetary policy provided less stimulus, it did not turn outright restrictive. equally, we did not see the kind of asset - price bubbles or the build - up of other financial vulnerabilities which typically precede a recession, as the unwinding of such imbalances generally results in lower private - sector appetite for borrowing, tighter lending standards by banks, and a rise in precautionary savings by households. in recent years, in part thanks to the generally accommodative stance of monetary policy, banks ’ non - performing loans have declined, the number of home repossessions has equally fallen to

in contrast to many of its peers, has failed to get much traction in the first half of 2017. after all, the end of the drought, together with the improving global environment and the recovery 5 for example, the consumer financial vulnerability index ( computed by the bureau of market research, the university of south africa, and momentum ) showed a significant deterioration in the second quarter of 2017. 6 organisation for economic co - operation and development 7 the oecd calculates export market growth for a specific country as the weighted average of import growth in its trading partners, with the shares of these partners in the country ’ s total exports as weights. page 5 of 11 in south africa ’ s terms of trade from the second quarter of 2016 onwards, was expected to engineer at least some economic rebound – but so far it is missing. most likely, the key to this lack of growth resides in a self - reinforcing ‘ negative feedback loop ’ of policy uncertainties, low private - sector confidence, subdued investment in productive capacities, and poor competitive performance. causality implications between growth and confidence go both ways. attempts by our in - house research to identify the possible causes of the ever - widening gap between south african and world growth have found that the negative impact of low confidence has increased in recent years, explaining as much as 1. 15 percentage points of that gap in 2016. in turn, weak business confidence amid disappointing demand performance has depressed private - sector fixed investment. last year, it contracted by 6. 8 %. as of the second quarter of 2017, it was down by 2. 7 % year on year and stood at 11. 8 % of gdp compared to a high of more than 15 % at the start of the global recession – its lowest level since 2004. in an environment of low consumer confidence and a lack of property price growth in real terms, the housing sector does not remain immune to such subdued performance. because of such softness in capital formation, as well as subdued productivity growth, the potential pace of gdp growth has slowed to an estimated 1. 1 % in both 2016 and 2017 from more than 3 % at the start of the decade. weak private - sector investment, currently focusing mostly on replacing obsolete capital rather than creating new capacities, coupled with a shortage of skilled labour and, possibly, product market rigidities, appears to be weighing on external competitiveness and export performance. south african firms may be slow to adjust to changes in global demand patterns ; they may lack the innovative edge