Warning: uneven recovery likely for SA economy

The South African Reserve Bank (SARB) is concerned that the country’s economic recovery could be K-shaped, a term used to describe an uneven rebound from a recession in which some sectors grow rapidly while others continue to struggle.

This warning was contained in SARB’s April 2021 Monetary Policy Review.

“Unlike most previous recessions, the recovery from pandemic conditions is uneven across sectors, raising the spectre of a K-shaped recovery. The COVID-19 recession is atypical: it differs from other recessions both in terms of its origins (policy directive) and in terms of its nature (a halt in activity for most of the economy),” the report stated.

In the report, SARB said it expected South Africa’s economy to expand 3,8% in 2021, with growth moderating to 2,4% in 2022 and 2,5% in 2023.

The report noted that the roll-out of COVID-19 vaccines were likely to be slow across the world, exacerbating the uneven pace of the global recovery. For South Africa, it assumed that

10% of the population would be vaccinated by the end of June, gradually increasing to 67% by mid-2022. According to Hugo Pienaar, chief economist at the Bureau for Economic Research at Stellenbosch University, agriculture experienced an exceptional year in 2020, and this success was set to continue in 2021. Even subsectors such as wine and tobacco, which were negatively affected by the lockdowns in 2020, could expect a better year in 2021.

“Lockdowns created pent-up demand for products such as wine and tobacco. Also, people adjusted their behaviour to consume more expensive food instead of going on holiday,” Pienaar said.

He added that any sector relying on the movement and mass gathering of people, such as tourism and entertainment, would continue to struggle for the foreseeable future until government managed to get mass vaccinations on track. “An effective vaccination programme is the single most important thing government can do to prevent a K-shaped recovery for South Africa,” Pienaar said.

Dawie Roodt, chief economist at Efficient Group, said a K-shaped recovery was likely. “The lockdown is impacting more on certain sectors than others, and the recovery will also be different for different sectors.”

He said trends established before the pandemic also had to be taken into account. “Technology industries were doing well before lockdown, which only added to their momentum. Agriculture is different, as the lockdown didn’t affect it that much. But agriculture is also going through a technology revolution, with innovations such as genetic engineering and precision farming.

“Government would do well to stop seeing agriculture as a political toy, and rather an innovative, technologically advancing sector with massive potential.” – Wouter Kriel

SOME SECTORS WILL GROW RAPIDLY, WHILE OTHERS WILL CONTINUE TO STRUGGLE