South Africa: GDP records largest drop on record in Q2
September 8, 2020
The economy plunged deeper into recession in the second quarter, with GDP nosediving 51.0% at a seasonally-adjusted annualized rate (SAAR). The fall, which was notably below the first quarter’s 1.8% decline, marked the worst result since records began in the early 1990s and the fourth consecutive quarter of contraction. Moreover, the reading came in below market analysts’ expectations of a 47.3% decrease.
The downturn reflected the impact of coronavirus lockdown measures on domestic activity. Fixed investment plummeted 59.9% SAAR in Q2, well below the 18.6% decrease logged in Q1, amid elevated uncertainty and depressed business sentiment. Moreover, household consumption fell 49.8%, contrasting Q1’s 0.2% increase as the unemployment rate climbed and consumers held off on non-essential spending. For its part, public expenditure declined 0.9%, contrasting the previous quarter’s 1.8% expansion.
On the external front, exports of goods and services fell 72.9% in Q2, which was below Q1's 3.3% contraction, largely reflecting a weak global trading environment and restrictions on the mining sector in April–May. In addition, imports of goods and services declined at a more pronounced pace of 54.2% in Q2, compared to Q1’s 16.9% fall. Thus, taken as a whole, the external sector subtracted 7.4 percentage points from the headline result in Q2, contrasting Q1’s 3.9 percentage-point contribution.
On an annual basis, GDP plummeted 17.1% in Q2, contrasting the previous period's 0.1% expansion.
Commenting on the outlook for the South African economy, Sonja Keller and Sthembiso E Nkalanga, analysts at JPMorgan, reflected:
“The 2Q GDP outturn was worse that the SARB’s predicted 40% ar nosedive, but our set of alternative data track an even sharper 3Q bounce than SARB has penciled in. Hard activity data have yet to be published, yet we believe the set of softer data that we used to gauge the 2Q contraction remain relevant and timely, particularly the BETI index, domestic VAT receipts and google activity data. […] These set of indicators point to an about 55% bounce in 3Q. If correct, then the output gap may be more sharply negative in 2Q, but likely narrower in 2H20 and 1H21 than the SARB outlined at its last meeting. More importantly, we believe uncertainty around the broader growth outlook have risen, not so much due to the initial external shock, but rather returning electricity cuts, fears of a second COVID-19 wave at year-end in South Africa and as fiscal policy could shift to a sharply negative impulse in coming quarters.”
Author: Hanna Andersson, Economist