Farmer's Weekly (South Africa)
COVID-19-ravaged global economy powers up rapidly
The world’s economy, driven mainly by higher commodity prices and government support, has recovered remarkably. South Africa’s economy should share, to some degree, in this growth, says
According to the International Monetary Fund’s (IMF) latest World Economic Outlook report, the global economy will recover to 6% growth in 2021 after declining 3,3% in 2020. The IMF also expects the major differences in growth between regions to continue.
The main drivers of the expected higher growth rate in 2021 are the low base in 2020, the recovery in the second half of 2021 as vaccinations are rolled out, huge government support packages in many countries, and higher commodity demand.
Commodity prices have increased sharply from 2020. Standard & Poor’s Commodity Index has grown 86% since March 2020, reflecting the increased economic activity as shortages due to the severe lockdowns in 2020 were lifted and normal trade recovered.
NO GUARANTEE OF GROWTH
The IMF has stressed, however, that these growth predictions are highly uncertain. If the new COVID-19 strains prove susceptible to vaccines, governments succeed in limiting economic damage, and commodity prices remain robust, growth may increase even faster than expected.
Conversely, if new strains of the virus are more virulent and vaccines prove to be less effective against them, governments fail to address the economic damage caused by the lockdown regulations, and commodity prices stagnate, growth will be lower than anticipated.
SOUTH AFRICAN OUTLOOK
Statistics South Africa (Stats SA) recently published the GDP growth figures for the first quarter of 2021 and the revised figures for 2020.
As I have noted in previous articles, South Africa’s economy was already in trouble before the onset of the COVID-19 lockdown measures.
The economy grew by a dismal 0,8% in 2018 and 0,2% in 2019, only to shrink by 7% in 2020.
Stats SA quoted seasonally adjusted and annualised growth of 4,6% in the first quarter of 2021.
Note that this figure only implies that, if economic growth during the rest of 2021 follows the same trend as in the first quarter compared with the previous quarter, the economy ought to grow by 4,6% in 2021.
However, if you compare the size of GDP in the first quarter of 2021 with the same quarter of 2020, you will see that South Africa’s economy shrank 3,2% year-on-year (y/y).
Despite this, economists are relatively optimistic about economic growth this year. The consensus estimate of the group of economists taking part in Media24’s monthly competition expects growth of 4,6% in 2021.
Favourable agricultural and mining conditions are the main drivers of the expected growth.
Final consumption expenditure by households decreased by 5,4% in 2020. After 0,9% growth y/y in the first quarter of 2020, consumer spending decreased by 16,7% in the second quarter, 3,7% in the third, and 2,4% in the fourth, improving somewhat to a decline of 0,9% in the first quarter of 2021.
Higher unemployment, reduced working hours and the negative effect of the lockdown on sectors such as tourism, restaurants and the catering trade all resulted in lower expenditure by consumers.
On the positive side, lower interest rates and lower debt levels resulted in a slight improvement in consumers’ disposable income.
Retail sales decreased sharply from March 2020 to May 2020.
Since then, retail sales have recovered dramatically and show an increasing trend.
Various retail companies report that consumers are spending more on basic necessities and less on luxury and capital goods.
BENEFITTING FROM WORLD RECOVERY
South Africa’s economy will share partially in the global economic recovery. Key uncertainties remain the effectiveness of the vaccination roll-out and of the vaccine against new strains of the virus. The current performance of the campaign does not fill one with confidence.
Government’s reaction to the current and future infection peaks will also affect the still vulnerable economy.
On the positive side, the mining sector will perform well, with increased global demand and higher prices.
Dr Koos Coetzee is an independent agricultural economist. Email him at farmersweekly@caxton.co.za. Subject line: Global farming.
THE VACCINATION ROLL-OUT IS A KEY CONCERN; AT THIS STAGE, ITS PROGRESS DOES NOT FILL ONE WITH CONFIDENCE