• The latest GDP data was worse than expected.
  • SA's economy shrank by a large margin.
  • But due to the way it is calculated, the headline number of 51% may be a bit of an overstatement.
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The latest economic data was enough to tip even the biggest South African optimist into a vat of existential despair.

Given South Africa’s stringent lockdown, with mining and manufacturing grinding to a halt for weeks, only limited shopping allowed at first and a ban on restaurant visits, travel, booze as well as cigarettes for long stretches, a sharp economic decline was expected. Still, the headline number, in particular, was a shocker: GDP slumped by 51% in the second quarter. It was worse than most economists expected.

Manufacturing and mining output fell by more than 70% during the three months to June, as almost all sectors shrank.

Source: Statistics SA

Here’s what you need to know about the new GDP data:

It’s not really a 51% decline

The headline number of 51% doesn’t mean that the economy more than halved in the second quarter.

In fact, the economy shrank by “only” 16.4% from the first quarter to the second quarter. And compared to the second quarter in 2019, the economy was 17.1% smaller.

The 51% number is the seasonally adjusted, annualised rate. It calculates how the economy would perform over a full 12 months if the quarterly performance were repeated for another three quarters.  

This annualised rate is calculated by raising the percent change between the two quarters by the power of four, after all seasonal affects were removed from the numbers. “This method is based on the assumption that the percentage change from the one quarter to the following quarter will be maintained for the entire year,” Statistics SA says.

But the economy (hopefully) won’t contract by 16.4% in the next three quarters too, which means the 51% number should wildly overstate the rate at which the economy will shrink over the next year.

Currently, it is expected that the economy will contract this year by between 7% and around 11% - depending on who you ask.

The contraction was in line with other countries in lockdown

South Africa’s economy was 17.1% smaller in the second quarter than in the same three months in 2019.

This is dismal – but it is broadly in line with other countries which were also in lockdown. India (-24%), Spain (-22%) UK (-22%) and France (-20%) suffered larger declines – and larger Covid-19 death tolls than South Africa.


SA's GDP decline was really very much in line with other major countries, says chief economist of Econometrix, Dr Azar Jammine.

Still, despite South Africa’s much lower death toll, it’s not clear to him that the stringent lockdown achieved its goal – given that the country has some of the highest infection rates in the world. South African has had a total of more than 600,000 cases, which is the seventh-highest number of infections in the world.

And unlike other countries, South Africa was already bleeding economically going into the pandemic. The past quarter was the fourth consecutive decline in quarterly GDP. (Ironically, the pandemic will break South Africa out of recession: the recovery in the third quarter will at last bring a positive quarter, halting the negative streak – for now.)

Jammine thinks it will take years for the country to recover from the pandemic if government doesn’t tackle the fundamental problems with the economy: corruption; weak state-owned enterprises; poor education outcomes; policy uncertainty; land expropriation; inconclusiveness over the mining charter and National Health Insurance; over-regulation of small businesses as well as the high cost of internet, given that connectivity will be even more essential in a post-Covid environment.

Lullu Krugel, chief economist for PwC Strategy Africa, believes the top priority should be finding a solution to the country’s electricity problems. “PwC estimates that the negative impact of load shedding in 2020 will completely cancel out the positive impact created by interest rate cuts and payments under the [UIF’s] Temporary Employer/Employee Relief Scheme (TERS).”

Sanisha Packirisamy, economist at Momentum, expects that the economy could stage a "shallow recovery" of 2% next year, as an increase in the number of business closures, persistently higher levels of unemployment and ongoing challenges to electricity supply detract from the expected upturn.

"In our view, the level of economic activity is only likely to return to pre-Covid-19 levels by 2023/2024."

Agriculture is doing really, really well

If there’s one shining light amid the second-quarter gloom and doom, it was agriculture.

Thanks to good rains and near-record harvests, the sector grew by 15% (annualised) over the quarter. The summer grain and oilseed output was 34% bigger than last year, while the total maize crop was 38% larger.

The first winter crop estimates are also markedly higher than last year as good rains and snow boosted crop prospects in the producing areas of the Western Cape.The citrus industry is also booming, with citrus exports up 19% from last year.

Unfortunately, however, agriculture only represents 4% of the total economy:

Source: Statistics SA

Pencil in another interest rate cut - or even more

The GDP number was much worse than the Reserve Bank predicted – it expected an (annualised) fall of almost 33%.

So while consumer inflation spiked unexpectedly to 3.2% in July, and two of the five monetary policy committee members already voted against another cut in July, the dismal economy may convince them to squeeze out another repo rate cut next week.

Krugel believes that the combination of weaker-than-expected growth and still-low inflation opens the door for even more than one rate cut in the short term.

So far this year, rates have been cut by 300 basis points, to the lowest level in half a century.


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