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Some people favour substantially more fiscal encouragement of certain types of spending

Similarly with economies. You can't grow output faster than what is physically possible by using existing production capacities and employable labour within existing regulatory and infrastructure constraints

The economy in this current eight-year old boom has been taken to full resource utilization, and our resource constraints, in terms of labour availability, fixed investment additions and regulatory constraints allow us to grow the economy at a maximum speed of 4.5% to 5% without strains developing.

Trying to burden the economy with yet more demand growth and tempting to coach yet more production will simply lead to overheating the economic engine.

Overheating is generally observable in shortages of resources (labour, materials) and final product, and the bidding up of wages and prices, resulting in accelerating inflation and growing spillovers into imports.

It is entirely possible to put an economy under pressure by demanding more through excessive spending than what it can deliver.

The outcome is still the finite output the economy can produce at a given time, plus spreading signs of overheating, like a donkey carrying a too great burden up the hill giving notice under protest of its imminent demise if the driver doesn't see sense.

Why this sermon?

For the past four years, our drivers have been taking some liberties with our national donkey. Talented labour has been scarce, because too few are trained, and too many frightened away to better pastures. Our fixed investment for decades was merely ticking over, adding minimally to physical production capacity and infrastructure.

When therefore the moment came, external fortune favoured us with windfalls and our macro policymakers designated the consumer as vehicle of choice to start a boom and accelerate economic growth, we were before long confronted with a few simple home truths.

Yes, if there is slack in the economy, such as spare capacity and unemployed labour, one can for a while grow faster than the longer term ability. So high demand growth can be translated into faster output growth for a limited period.

But once having used up such slack, the long-term growth ability becomes the absolute speed limit.

For decades we grew slowly, maintaining a lot of resource slack. Then from 2003 we accelerated to over 5% GDP growth, as even faster demand growth was unleashed, led by consumers. And for a while this only gave one kind of trouble (growing import spillovers), already an early indication of overtaxing the donkey.

From last year, underlying inflation pressure started to increase. Although external factors (oil, food) where responsible for two-thirds of the CPIX inflation increase from 3% to 8% trough-to-peak, labour costs also picked up, indicative of too many shortages for whatever reason (not all of them economic).

With potential GDP growth 4.5% today, running fixed investment expansion at 16% and household consumption growth at 7% is clearly not sustainable without severe pressure building up. The fixed investment built-up was foolishly started late, and then had to double-up its efforts in order to catch-up with our dire needs.

Resource slack became fully taken up within existing regulatory constraints. If investment was imperative, as it is, it meant household consumption should eventually take a backseat, in line with overall growth potential. Only if growth potential were to increase over time would it be possible to allow consumption to accelerate anew.

For now, with GDP growth limits of 4.5% and fixed investment growth in double digits, consumption growth should be limited to say 4% annually. As fixed investment fully catches up and peaks out as share of GDP, with sustainable GDP growth potentially increasing to 6%, consumption growth could be allowed to average 5%-6%.

It takes time doing all the right things to get there.

Clearly, households have been the vehicle of choice to get the economy going, and to get a great investment effort going. But having kick-started a much faster growth performance, households need to throttle back now to a more legitimate speed, as they will otherwise overheat the engine, and cause breakdown.

Any other lessons?

South Africa will be experiencing a change in leadership shortly, where some people favour substantially more fiscal encouragement of certain types of spending.

Just as much as consumers in the end had to admit supply constraints, so will future policymakers. If they want faster growth they will have to improve the supply capability of the economy, meaning more talented employable labour, more productive investment, less debilitating regulatory and political interruption of the economy.

And they have to do so practically rather than wishfully.

If such understanding is not shown, the economy will be made to overheat, as much as when consumers try to take more from the economy than what can be sustainably supplied.

Can't tap blood from stone. But a good crusher can give unlimited rubble any day.             

Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics