GDP likely to contract in Q3 following July unrest
SOUTH Africa’s GDP could contract again in the third quarter as July data indicated economic activity was shrinking, following a respectable rebound in the second quarter.
The composite leading business cycle indicator, released by the SA Reserve Bank (SARB) yesterday, fell by 4.4 percent and 2.5 percent in June and July, respectively, after it reached a peak in May. The SARB said nine of the 10 available component time series decreased, while one increased.
The largest detractors were decelerations in the six-month smoothed growth rate of job advertisement space, and in the number of new passenger vehicles sold, as activity virtually ground to a halt during civil unrest in July. The only positive contributor was the increase in the number of residential building plans approved during the period.
The decline in the business cycle indicator should raise concerns for the SARB ahead of its crucial monetary policy committee meetings where it will decide on interest rates, which have been at a historic low since last year. The central bank has indicated that it would like to keep rates as accommodative as possible to shore up the economy, following the devastation caused by the riots in July, and the alert level 3 lockdown restrictions.
July was a particularly challenging month for the economy when the Covid-19 pandemic and civil unrest, accompanied by wanton looting and destruction of businesses, hampered retail activity and dented confidence.
This was supported by sentiment from the Bureau for Economic Research (BER) on Monday, which showed that South African retailers remained pessimistic about business conditions in the short-term, in spite of confidence rising to the highest level in more than five years.
The BER said retailer confidence climbed to reach a seven-year high of 56 points in the third quarter, up from 54 points in the second quarter, despite looting and trade restrictions.
Investec chief economist Annabel Bishop said yesterday that the July riots would negatively affect economic activity as far out as the second quarter of 2022. Bishop said the focus had now shifted to what effect the results of the November 1 local government elections could have on business confidence, given the current rhetoric by certain political parties on private sector asset ownership.
“The negative impact of July’s unrest will stretch into next year, but the political landscape has been switching focus to the November 1 municipal elections, but extremely low voter turn-out for registrations is evidencing voter apathy, with many disenchanted by service delivery and the extent of corruption,” Bishop said.
“Business confidence remains at risk in the lead-up to the elections, particularly as some parties seek to undo the work that the government has done in attempting to rebuild confidence in South Africa, highlighting both government and ANC failures, despite urgent work being done to repair these.”
Bishop said the municipal elections were expected to yield a number of coalitions, further diluting the strength of the ruling party, while the SARB showed that South Africa remained in a downwards phase of the business cycle.