South Africa’s GDP contracted by a record 16.4% – or by 51% on a quarter-on-quarter, seasonally adjusted and annualised rate – in the second quarter of 2020, extending the country’s technical recession to four consecutive quarters of negative economic growth.
GDP figures released by Statistics SA (Stats SA) on Tuesday show that GDP shrank by 17.1% year-on-year in April, May and June, reflecting the impact of the country’s stringent lockdown restrictions to try and curb the spread of the Covid-19 coronavirus pandemic.
The strict lockdown brought economic activity to a standstill, with manufacturing and the mining sector being the biggest losers in the quarter.
According to Stats SA, the manufacturing industry contracted by 74.9% in the second quarter.
“All 10 manufacturing divisions reported negative growth rates in the second quarter. The divisions that made the largest contributions to the decrease were basic iron and steel, non-ferrous metal products, metal products and machinery; food and beverages; and petroleum, chemical products, rubber and plastic products,” reads the report.
FNB economist Geoff Nölting said this happened because the majority of the manufacturing sector was not deemed an essential service under level 5 and level 4 of lockdown.
“Similarly, all three construction subcomponents plunged, resulting in the sector falling by 76.6%. Unsurprisingly, an abrupt halt in general economic activity led to the utilities sector declining by 36.4%,” he said.
The Stats SA report showed that the mining and quarrying industry decreased by 73.1% and contributed -6 percentage points to GDP growth.
The report said this was mainly due to global lockdown restrictions which led to a fall in global demand for mineral products contributing to decreased production in platinum group metals, gold, iron ore, chromium ore and coal.
Former Anglo-American SA deputy chairperson Norman Mbazima said the mining sector had endured various challenges – from electricity supply constraints to policy uncertainty and logistics challenges.
Mbazima said even before the impact of Covid-19, the mining industry in South Africa was in structural decline.
He said that without significant intervention to alter this trajectory, it was anticipated that output, employment, GDP contribution and fiscal contribution would continue to decline.
Mbazima said the South African mining industry was estimated to have lost between R7 billion and R12 billion in output in 2019 owing to power blackouts.
The report also shows that the trade, catering and accommodation industry decreased by 67.6%. The finance, real estate and business services industry decreased by 28.9% and contributed -5.4 of a percentage point to GDP growth.
Household final consumption expenditure decreased by 49.8% in the second quarter, contributing -30.8 percentage points to total growth. The main negative contributors to growth were expenditures on transport, clothing and footwear, alcoholic beverages, tobacco and narcotics.
“This can be directly linked to lockdown restrictions exacerbating already weak labour market conditions,” said Nölting.
He added that government consumption was also down 0.9%, not only owing to a decline in employment but also to a reduction in spending on goods and services despite increased expenditure on personal protective equipment.
South Africa’s restrictions to curb the spread of Covid-19 put the economy into its longest recession in 28 years.
The pandemic hit South Africa when the fiscus was already stretched to its limits.
In June, Finance Minister Tito Mboweni said the country was in its worst economic performance since the Great Depression, with National Treasury projecting a GDP contraction of 7.2%.
South Africa’s 2020 recession follows almost a decade of modest growth. Persistent electricity shortages, rising government debt and policy uncertainty continue to hold back investment and underscore low growth.
In response to today’s GDP figures, President Cyril Ramaphosa said the decrease in GDP during the second quarter of 2020 reflected the severe impact of the pandemic on the economy.
He said the 51% annualised GDP contraction represented an anomaly owing to the lockdown imposed at the end of March.
Ramaphosa said the R500 billion emergency relief package announced in April prevented the worst effects of the pandemic.
“More than R40 billion has been paid to more than 4 million workers through the Unemployment Insurance Fund to prevent retrenchments, and more than 5 million beneficiaries have received the special Covid-19 grant for social relief of distress,” he said.
He added that R25 billion was paid to top up existing social grants as well as an additional caregivers’ allowance for recipients of the child support grant, and that more than R70 billion was extended to businesses in distress in the form of a tax relief grant.
Ramaphosa said three important processes were under way to support economic recovery.
He said government would finalise its economic recovery strategy, which would draw on this social compact and outline a clear, action-oriented plan to stimulate economic growth and enable a rapid rebound.
“This strategy will include fast-tracking urgent structural reforms, expanding employment programmes, facilitating large-scale investment in infrastructure projects, and implementing measures to promote localisation and enhance regional and continental trade,” said Ramaphosa.
He said the presidential employment stimulus would begin implementation within the next month, and would expand opportunities through public and social employment to counteract job losses.
On the upside, the GDP figures show that the agriculture, forestry and fisheries sector was the only positive contributor to GDP growth, with an increase of 15.1% and a contribution of 0.3 of a percentage point to GDP growth.
The increase was mainly owing to increased production of field crops and horticultural and animal products.
Nölting said South Africa should anticipate more upbeat growth prospects in the second half of the year owing to the gradual easing of restrictions on economic activity as well as a low base in the second quarter.
“Overall, we still affirm our view that economic growth will decline by 8% year-on-year in 2020. While we are encouraged by the infrastructure drive as part of the broader post-Covid-19 economic recovery plan, this remains an upside risk to our longer-term growth outlook,” said Nölting.