Based on our estimates, potential growth has fallen substantially: from levels in excess of 4% per year in the mid-2000s to an average of 1.2% since 2015. This reflects, among other things, a sharp slowdown in the growth of fixed investment, skills constraints, and weak productivity gains.
Even with an unusually low level of potential growth, the South African economy has consistently failed to reach its potential. This has been underscored by the recent recession, which produced a more negative output gap estimate of -1.5% of GDP for the second quarter of 2018 – the widest gap in a decade.