Economic activity in South Africa has come to a near standstill, as reflected by BankservAfrica transactions analysed by Mike Schüssler, chief economist at economists.co.za.
The data of credit and debit card transactions, as well as ATM cash withdrawals all over SA, span the period since the start of last week, when President Cyril Ramaphosa announced a national coronavirus-curbing lockdown of 21 days would start on 26 March. The data excludes online shopping transactions.
A drop in transactions since the start of the lockdown suggests that around 70% of the "consumer-facing economy" in South Africa has fallen away, indicating that a plummeting decline in gross domestic product (GDP) could be on the cards, Schüssler told Fin24 on Wednesday. The consumer-facing economy would include hotels, shops, restaurants, even toll roads and hair salons.
The number of transactions on Sunday March 29, for instance, was only about 60% of what one would normally see on low-spending days like Christmas Day and Easter Sunday.
In Schussler's view, the data foreshadows a "big economic catastrophe" and that SA could expect GDP to plummet in the second quarter, with a record decline of as much as 10% for the year.
While other economists have issued similar warnings, Schussler believes the transaction indicates a steeper drop than previously predicted. Economist Jameel Ahmad previously told Fin24 that a dip of between 4 to 5%, if not worse, was likely in the second quarter of 2020, while economist Dawie Roodt warned of a 6% contraction of SA's GDP in the second quarter of the year. Roodt made the prediction before Ramaphosa announced the lockdown.
Schüssler says although it is difficult to forecast, as consumers make up about 60% of expenditure in the country, a one-month lockdown could see a double-digit drop in GDP in the second quarter. In his view, while the third and fourth quarters could see growth again, the catch-up will not be as great.
"The data already shows how bad the economic impact of the lockdown is, and it is likely to continue. It is dead quiet out there and will harm the country's economic growth. SA will be lucky to get a single digit decline in GDP," he says.
He anticipates the overall annual decline in GDP this year may be as high as 10%.
Limited impact of panic buying
The data further shows that, at the start of the national lockdown, South Africans rushed to the stores to purchase goods. The normal volume of transactions from Tuesday (24 March 2020) to Thursday (26 March 2020) reached 148% of usual volumes processed at point-of-sale (POS) terminals and ATMs. This has since changed, with the volumes of ATM and POS transactions having declined dramatically at the end of the first three days of the lockdown.
For Schüssler, this indicates that many people appear to be following instructions and staying at home.
Furthermore, the period in question was a month-end, yet, 2020 volumes were only 31.6% of the volumes recorded over the same three-day period in March 2019.
On Sunday, March 29, the transaction volumes were just 28% of the volumes for the same day last year. Just 1.2 million transactions were recorded compared to an average of 5.4 million on a more typical day after month-end.
Easy stop, hard start
"It is much more difficult to restart an economy than to stop it. I assume it will take a week after the lockdown ends to get back to 85% or 90% of the transaction activity there was before it started," he says.
"This could be the worst year SA will ever have in long long time, and likely the worst at least since the end of the Second World War. Trade volumes won't just jump up suddenly after lockdown and airlines will take a long time to start up again."
He also foresees that, due to the uncertainty, transaction volumes in sectors like the housing and auto market will take a long time to bounce back - maybe only in three or four months' time after the lockdown ends. In the manufacturing sector it could take five to eight weeks before factories would be fully operational again.
"The BankservAfrica data clearly shows there is a big economic catastrophe happening. A million people could lose their jobs and this will reverberate around the country in a massive way," warns Schüssler.
"There is clearly no chance that the economy will grow this year and the BankservAfrica data is giving an indication for policymakers of what is going on."