The results obtained for potential output based on the structural production function approach
indicate that the potential, “sustainable” growth rate (maximum level of output consistent with
stable wage inflation) for South Africa, is about 3 per cent. Without a doubt this is significantly,
even substantially, lower than the 7 per cent dreams of Mr Manuel.
Given the fact that the potential growth rate is less than expected, the capacity of the South
African economy is lower than anticipated, resulting in output gaps fluctuating around 100 per
cent and not between levels of 80 and 90 per cent as revealed by the surveys of the South African
Reserve Bank (see figure 4). The structural problems, evident from the upward trending
NAWRU, contribute to the fact that South Africa’s potential to grow has been diminishing over
time and that increases in output put pressure on wages and prices much faster than popular
opinion would hold.
Figure 4: Capacity utilisation
^βUP Model ---South African Reserve Bank
Furthermore, the market surveys according to the South African Reserve Bank show a decrease
in the average utilization of capacity, which can not completely be explained in terms of business
cycle movements, that is upswings and downswings on the back of demand fluctuations. Given
our analysis, it is plausible to contribute this phenomenon to the upward-trending NAWRU —
less capacity is utilised because less capacity can be utilised.