GDP plunge – don’t panic
The gross domestic product plunge of 51% in the latest figures is not a true reflection of SA’s economy and is calculated on an ‘annualised’ basis so, with many businesses having reopened, things will improve, predict experts.
The 51% quoted is an ‘annualised’ rate and things look set to improve.
It’s bad – but it’s no reason to “go off the rails” and panic, according to experts in the wake of yesterday’s announcement by Stats SA that the country’s gross domestic product (GDP) had declined by a shocking 51.2% “on an annualised basis”.
While many commenting on social media – as well as some journalists – were portraying this as the loss of more than half of the economy, the reality is somewhat different.
Philippe Burger, vice-dean of the faculty of economics and management sciences at the University of the Free State explained that “before we go off the rails, the economy in Q2 is not half its size in Q1.
“The 51% is an annualised rate. That means, we take Q2 shrinkage and ask, if the whole year looks like this, with how much will the economy shrink?
“Output in Q2 was 16.4% smaller than in Q1. That is bad as it is, but the whole year will not look like Q2 – there will presumably be a rebound in Q3 and Q4. Hopefully, for the full year shrinkage will come in under 10%.”
Burger added that, hopefully, the fourth quarter of 2020, looked at on a year-on-year basis, might show the decrease in GDP “come in under 10%”.
“We therefore have a big recovery problem, but we need to nevertheless keep a sense of perspective: we did not wipe out half the economy.”
Josh Budlender, a South African PhD candidate at the University of Massachusetts, commented that the “annualised” figure is the “wrong number to headline right now”.
“The annualised number means what would the yearly decline be if the Q1-Q2 rate of decline [16%] extended for a year,” he said.
“But we do not expect this ... because the first two quarters included lockdown, which has since been gradually lifted.
He said although the 16.4% decline quarter on quarter was “substantial” and among the worst globally, it was “wrong to assume” the decline would extend for the year so it was wrong or misleading to use the 51% number.
He added: “I think it’s completely understandable that many didn’t pick up on the implications of this arcane reporting convention. I wish Stats SA had contextualised the numbers better.”
Stuart Theobald, chairman of Intellidex, tweeted yesterday that the “annualised” calculation was more of a tool to calculate trends and would see the -16.4% figure being compounded over four quarters … which leads to the shock figure.
In reality, said Theobald, Intellidex was predicting that GDP will be down around 10.4% for the year. “Still a disaster, but not half the entire economy shutting down,” he added.
President Cyril Ramaphosa said the decrease in GDP “reflects the severe impact of the global coronavirus pandemic on the economy and should spur all South Africans to do all they can to help rebuild the economy.
“The coronavirus represents a once-in-a-century social and economic crisis, with disruptions to production, a synchronised decline in export markets and a prolonged decrease in demand for many service industries.
“The economic circumstances created by the pandemic have caused hardship for many South Africans and threaten the survival of businesses in sectors that are worst-affected.”
He went on: “As the epidemic continues to stabilise, a strong recovery is possible through targeted actions to restore economic growth and protect the livelihoods of our people.
“Now is the time to act quickly and boldly to place South Africa on a rapid growth trajectory. We cannot continue with business as usual. We will use this moment of crisis to build a new economy.”
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