SA stock hit hard as GDP collapses by 51%

Country enters deeper into recession after Covid-19 lockdowns and constrained consumer spending begin to bite

SOUTH African stock took a hit yesterday as the country entered deeper into recession after the gross domestic product (GDP) collapsed 51 percent on annualised basis in the second quarter on the Covid-19 lockdowns and constrained consumer spending.

The rand weakened 1.3 percent to R16.92 against the dollar by 5pm, relinquishing gains it had made earlier in the month that saw it flirting with the psychological R16.50 barrier against the greenback as data from Statistics South Africa (StatsSA) showed that the GDP declined the sharpest quarter-on-quarter in 28 years.

The JSE All Share Index fell 0.42 percent to close at 54 170.19 points while the JSE Top40 Index fell 0.47 percent to 49 950.08 points.

Gold stocks also retreated 1.79 percent to close at 1 919.31 points.

Peregrine’s Bianca Botes said the fallout from the Covid-19 pandemic would have an impact on the performance of the rand.

“The extent to which this economic contraction will impact on both fiscal and monetary policy and how we will be able to navigate the road ahead will be crucial, given the current dire fiscal position that the government faces,” Botes said.

StatsSA said that all industries recorded negative growths in the period, except for the agricultural sector which increased 15.1 percent underpinned by the increased production in field and horticulture crops, as well as animal products.

The agency said the primary sector tumbled 59.1 percent quarter-on-quarter as the mining industry slumped a massive 73.1 percent.

It said the secondary sector plummeted 72 percent, dragged lower by manufacturing and trade sectors while the construction industry was hardest hit, slumping by 76.6 percent.

The tertiary sector also declined by 40 percent as trade, transport, finance and government decreased.

Statistician- General Risenga Maluleke said the contraction dwarfed the annualised slowdown of 6.1 percent that was recorded in the first quarter of 2009 during the global financial crisis.

“Historical data from 1960, sourced from the South African Reserve Bank, show that the second quarter of 2020 experienced the biggest fall in GDP since that year, which was far steeper than the annualised 8.2 percent decline in the fourth quarter of 1992,” Maluleke said.

Household spending on most products fell by 49.8 percent during the period, in line with the closure of hotels, restaurants, transport services, recreational facilities and many stores.

StatsSA said the protracted ban on alcohol and cigarette sales also had an impact on household expenditure.

Citadel’s chief economist Maarten Ackerman said the decline would deepen until the country implemented the economic reforms and successfully addressed the structural issues.

Ackerman said that the underlying trends showed an economy that was in fact already on its knees prior to Covid-19.

“Although we are going to see a rebound in the second half of this year, the longer term picture demands that we put a number of structural reforms in place,” Ackerman said.

“The current fiscal situation is unsustainable. We have to get the economy going.”

The National Treasury and the International Monetary Fund currently expect 2020 GDP growth of between 7 and 8 percent.

But experts say the contraction will surge past 8 percent this year as an increase in the number of business closures, higher levels of unemployment and ongoing electricity supply challenges detract from the expected upturn despite the gradual easing of restrictions.

Investec’s Lara Hodes said high frequency data releases for the third quarter thus far pointed to modest signs of recovery. However, the path to pre-Covid levels was likely to be protracted and arduous.

“Electricity supply challenges, persistent policy uncertainty and the slow implementation of crucial reforms continue to weigh on business and consumer confidence, inhibiting growth,” she said.

“We are still anticipating a -10.1 percent year-on-year contraction in GDP for this year.”