It’s a catastrophe from any angle

For those not well-versed in the arcane parts of economics and finance, yesterday’s announcement by Stats SA that the country’s gross domestic product (GDP) declined by an annualised 51% would have been a seismic shock.

Half the economy has vanished because of the effects of the government strict Covid-19 lockdowns? Well, not exactly.

The annualised metric is somewhat misleading in the current, unprecedented, situation brought about by the coronavirus and the attempts to combat it.

Stuart Theobald, chairman of Intellidex, tweeted yesterday that the actual economic activity in the second quarter of 2020 (when lockdowns in South Africa were at their strictest) was down 16.4% on the previous quarter. He explained that the “annualised” calculation was more of a tool to calculate trends and would see the -16.4% number being compounded over four quarters … which leads to the shock figure.

In reality, said Theobald, Intellidex is predicting that GDP will be down around 10.4% for the year.

He added: “Still a disaster but not half the entire economy shutting down.”

It is important that the voices of experts like him are given an airing now, when perceptions of a near-collapse of the economy can not only bring on depression, but can also scare off foreign and domestic investors. Citizens may also retreat further into their own financial laagers and cut down further on spending.

The danger, too, of the “half the economy disappeared” narrative is that it will be used to attack the idea of lockdowns as a pointless exercise. Yet, it can still not be known, precisely, how many deaths and infections were prevented by the restrictions.

But we can’t relax, because the economic catastrophe is still real.