One year later
Pandemic’s ups and downs
Exactly 365 days ago, the fierce coronavirus hit our shores with the first case: a holidaymaker who returned from Italy – and the world as we know it changed forever with lockdowns, masks and more than 50 000 deaths. We unpack the country’s bumpy ride over the past year.
The SA economy was already in a recession when Covid-19 was first diagnosed in the country exactly a year ago – and the initial level 5 hard lockdown hasn’t done the economy any favours.
According to the Reserve Bank’s quarterly report, real gross domestic product (GDP) had contracted by a further 1.4% in the fourth quarter of 2019 and as 2020 progressed, the picture became darker. In the end, GDP decreased by 7%.
“It was a Great Depression-type of year,” said Hugo Pienaar, chief economist at the Bureau for Economic Research at the University of Stellenbosch. “We will have conformation when the 2020Q4 GDP data is released next week, but it is likely to have contracted by about 7% in 2020. This was an unprecedented shock.”
Annabel Bishop, chief economist at Investec, said the economic devastation had been significant.
“During the second quarter of 2020, most industries, except those providing essential goods and services, were forced to halt activity. In the third quarter, many sectors were permitted to reopen, but the financial effects of the level 5 lockdown caused many businesses, especially smaller firms, to shut down permanently or downscale their workforce,” Bishop said.
While many people favoured a W-shaped bounce back, Prof Jannie Rossouw of the Wits Business School said a recovery didn’t have to be W-bounce. “It could be a V-bounce, with some rapid recovery growth in 2021, and thereafter continued slow growth of about 1.5% per annum.”
Pienaar said the first quarter of this year would be a setback to the recovery, because the renewed restrictions announced late in December impacted confidence and weighed on spending, especially in January. “However, based on recent company commentary, the situation seems to have improved from February.”
Bishop said the return to pre-pandemic levels of activity was likely to be protracted, with downside risks, including a slow vaccination roll-out and new variants of the virus. “We anticipate growth of 2.9% y/y in 2021, but this is coming off 2020’s low base.”
Pienaar said the time horizon was important. “This year will be a recovery year, with real GDP growth likely to surpass the poor pre-Covid rates. Of course, this growth comes off last year’s very low base, but we have the ability to surpass the weak pre-Covid growth rates. However, this will require the fast-tracked implementation of structural reforms.”
He warned although vaccination of most of the population should be government’s number one priority, SA had to implement much-needed structural reforms.
Rossouw expected it would probably take about three years to wipe out the negative economic performance of 2020.
Bishop warned “the deep scarring the economy experienced from the harsh shutdown of economic activity last year will persist until 2024”.