Worst slump in 75 years, but 2021 is expected to be better

• Stats SA says further lockdown easing helped boost manufacturing, trade, transport, catering and accommodation

Fourth-quarter economic growth data, which showed the economy grew at a seasonally adjusted and annualised 6.3%, was not enough to offset the expected slump in full-year GDP, which contracted 7% in 2020, Stats SA said on Tuesday.

The growth rate in 2020’s final quarter was better than the expected 5.6% adjusted quarteron-quarter expansion predicted by the median estimate of 15 economists surveyed by Bloomberg before the release.

Stats SA said that the 7% fullyear contraction was the biggest since official records began in 1946, though it was marginally better than the 7.2% contraction the Treasury forecast in its 2021 Budget Review. Stats SA annualises its quarterly GDP statistics, which assume the percentage change from one quarter to the next will be maintained for the whole year.

“This is a significant sign that the recovery continued into the back end of 2020, which has underpinned the revenue overshoot the government experienced and was reported on in February’s budget,” said Maarten Ackerman, chief economist at Citadel. “There was also no loadshedding during the final quarter of 2020, which contributed to these numbers.”

Stats SA said expansion in fourth-quarter growth was driven largely by further easing of Covid-19 lockdown restrictions, which helped boost manufacturing, trade, transport, catering and accommodation. Yet, despite the final-quarter improvement, which followed a revised 67.3% adjusted, quarteron-quarter rebound in the economy in the third quarter, it still did little to mask the extent of the damage wreaked on the economy in 2020 by the pandemic.

Stats SA described the 7% annual contraction in 2020 as the worst slump since at least 1946. Bloomberg cited central bank data showing it was the biggest economic contraction since 1920, when output fell 11.9% during the a two-year recession after World War 1. When measured on a year-onyear basis, GDP contracted 4.1% in the fourth quarter.

North-West University Business School economist Prof Raymond Parsons said: “The negative growth figure for 2020 as a whole again demonstrates how much economic ground was lost last year in terms of widespread business failures, huge job losses and significant shrinkage in disposable income.

“Fortunately, the economic news in 2021 is now better. High-frequency data suggest that a strong recovery is under way this year, in tandem with SA’s lockdown exit strategy presently reduced to level 1. However, we need to acknowledge there is still a long way to go to restore national output and employment to their prepandemic levels.”

The rand extended gains on Tuesday afternoon after the GDP data release, advancing 1.1% against the greenback to R15.35/$. SA’s benchmark R2030 government bond also firmed, with the yield down 10 basis points to 9.46%. Yields move inversely to prices.

SA’s shrinking economy and rising joblessness have put pressure on SA’s debt-to-GDP ratio, which the Treasury says will stabilise at 88.9% of GDP in 2025/2026 rather than the 95% predicted in October 2020. The slightly improved debt trajectory the Treasury forecast was helped by it collecting R99.6bn more revenue in the 2020/2021 year than expected in October.

Yet that did not stop Moody’s Investors Service expressing scepticism at the Treasury’s debt forecast, saying after the 2021 budget speech that it expects debt to reach 100% of GDP by fiscal 2024.

The biggest contributors to SA’s fourth-quarter GDP were the manufacturing, trade and transport industries. Manufacturing expanded 21.1% and contributed 2.4 percentage points to fourth-quarter GDP growth. The trade, catering and accommodation industry increased 9.8% and contributed 1.3 percentage points; while the transport, storage and communication industry increased 6.7% and contributed 0.5 percentage points to the fourth-quarter expansion.

Expenditure on real GDP increased at an annualised rate of 6.5% in the fourth quarter.

Household consumption increased 7.5%, contributing 4.7 percentage points to total growth, while government final consumption expenditure increased by 1.1%, contributing 0.2 percentage points.

Gross fixed-capital formation, a proxy for the amount of investment in the economy, increased at a rate of 12.1%, contributing 1.9 percentage points.

Changes in inventories in the fourth quarter contributed four percentage points to total growth, even as net exports declined as recovering consumption boosted imports.

Still, analysts have said it will take years for the economy to recover from the pandemic-induced plunge.

Reserve Bank senior economist David Fowkes said in early February that GDP is likely to return to 2019 levels only by 2023.

Nevertheless, others have been more bullish. Old Mutual Investment Group chief economist Johann Els said at the beginning of March that 2021 will be SA’s “comeback year” with economic growth rebounding to 5% due to a “bungee cord rebound effect” from 2020’s slump.

Els’s growth estimate for 2021 is almost equal to the Treasury’s combined forecast for both 2021 and 2022, which assumes growth of 3.3% and 2.2%, respectively.

THERE IS STILL A LONG WAY TO GO TO RESTORE NATIONAL OUTPUT AND EMPLOYMENT TO THEIR PRE-PANDEMIC LEVELS