What to expect from South Africa’s second-quarter GDP data

Statistics South Africa (StatsSA) will publish the results of South Africa’s Gross Domestic Product (GDP) for the second quarter of 2020, on Tuesday (8 September), providing a clearer picture of the severity of the economic impact of Covid-19.

The data for the three months to June 2020 – the period in which the country was under a hard lockdown, enforced by the government to prevent the spread of the coronavirus – is expected to show that the country entered into a much deeper recession.

The return of load shedding is also expected to weigh on the country’s productivity levels over the period.

A poll conducted by Reuters shows that economists expect an annualised 44.5% contraction in the April-June quarter (Q2), compared with the median estimate in a July poll for a 38.7% fall.

“The single biggest threat to the ZAR over the longer-term is the state of SA’s fiscal position. It is unsustainable,” said analysts at ETM Analytics in a note.

“The GDP figure could well be the worst print in a century and offer insight into a budget deficit that will probably rise to around R700 billion or more.”

South Africa recorded a decline in Gross Domestic Product (GDP) in the first quarter of 2020, deepening the recession it entered into at the start of the year.

According to Stats SA, GDP growth for 1Q20 was recorded at -2%, marking the third quarter of decline in succession, following drops of 0.6% in 3Q19, and 1.4% in 4Q19.

Meanwhile, Bloomberg reported that South Africa’s economy probably contracted by an annualised 40.1% in the second quarter, according to forecasts by the Reserve Bank.

Nedbank said in a recent note that concerns about the fiscal situation, corruption allegations, and weak growth prospects will continue to weigh negatively on investor confidence, reduce the attractiveness of the country’s assets and potentially undermine foreign capital inflows.

And, while growth is seen recovering in the third quarter, South African consumer confidence remained at an almost three-decade low in the three months through June, First National Bank said in an emailed statement to Bloomberg on Monday.

The government started a gradual, phased re-opening of the economy on May 1 and moved to so-called level 2 in mid-August, allowing most business and domestic travel to resume.

However, many companies have closed down permanently or fired workers during the lockdown and the unemployment rate probably surged to 35% in the second quarter, according to the median of eight economists’ estimates in a Bloomberg survey.

The easing of restrictions and resumption of economic activity “have finally allowed most consumers to go back to work and earn a living,” said Mamello Matikinca-Ngwenya, FNB’s chief economist.

“Unfortunately, there is significant risk that household finances in general could rebound by less, or take longer to recover, than consumers currently anticipate,” Matikinca-Ngwenya said.

“Not only are the Covid-19 social grant top-ups and the new social relief of distress grant set to expire in October, but job losses are projected to rise further over the next six months.”

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