GDP drops an annualised 51% in second quarter
The rand dropped 1.14% on Tuesday afternoon as Stats SA revealed that the economy fell 16.4% on a non-annualised basis
SA’s dire economic position was thrown into stark relief on Tuesday with Stats SA revealing that the economy shrank by an annualised 51% during the second quarter, the worst quarterly collapse on record.
After opening on Tuesday morning at just above the R16.7/$ mark, at 1.14pm the rand had weakened 1.14% to R16.9245/$, its worst one-day drop since August 31.
The impact of the coronavirus pandemic and SA’s severe lockdown, one of the world’s harshest, were writ large in an economy already in recession ahead of the crisis, with the latest figures completing four consecutive quarters of decline.
The economy went into a hard lockdown on March 27, with all but essential services prevented from operating. Though restrictions have eased gradually during the intervening months, it has only been since mid-August, and the move to level 2, that almost all economic activity has been permitted to restart, including domestic tourism and interprovincial travel for leisure purposes.
Though a sharp rebound is hoped for the third quarter, renewed load-shedding by perennially troubled power utility Eskom is likely to weigh on the prospects of SA’s recovery. Despite the fall-off in activity, energy shed this year is the highest in more than a decade.
The outcome was worse than market expectations, with the median forecast from economists polled by Bloomberg predicting a fall of 47.2% on a quarter-on-quarter, annualised basis. The SA Reserve Bank, meanwhile, had expected a 40% quarterly decline.
Stats SA’s figures are adjusted for seasonality and annualised. If the second-quarter results are not annualised, GDP contracted by 16.4%, according to the agency. The biggest drags on growth came from the construction, manufacturing and mining sectors — which fell by 76.6%, 74.9% and 73.1%, respectively.
The only positive contributor to growth came from the agriculture sector, which managed to grow by 15.1%. This was in line with the expectations of some economists, given that agriculture was deemed essential for food provision during the lockdown and could stay open, as well as there being encouraging harvests for certain crops. The expenditure side of GDP saw a similar collapse, plummeting 52.3% on seasonally adjusted, annualised basis.
Household consumption contracted 49.8%.
Consumption spending accounts for roughly two thirds of GDP, but households have faced widespread jobs losses and cuts to their income under the lockdown.
This has led to record declines in consumer confidence in both the second and third quarters of the year, which hit 35-year and 27-year lows, respectively, as consumers hold off on big purchases and assess their finances in the coming 12 months.
Gross fixed capital formation, a proxy for investment in the economy, contracted for a second quarter, collapsing by 59.9%. Though the state has identified infrastructure investment as crucial to lifting the economy out of its slump, many private-sector companies, as well as large state-owned enterprises, are revising their expansion plans given the lockdown’s hit to their bottom line. —
The rand dropped 1.14% on Tuesday afternoon