South Africa’s gross domestic product (GDP) dropped by a massive 51% in the second quarter of the year, reflecting the immense damage done to the economy by the Covid-19 lockdown.
This pushes South Africa even deeper into recession, after GDP growth for 1Q20 was recorded at -2%, following drops of 0.6% in 3Q19, and 1.4% in 4Q19.
It was the fourth consecutive decline in quarterly GDP since the second quarter of 2019, Stats SA said.
Manufacturing contracted by 74.9% in the second quarter. All ten manufacturing divisions reported negative growth rates in the second quarter.
The divisions that made the largest contributions to the decrease were basic iron and steel, non-ferrous metal products, metal products and machinery; food and beverages; and petroleum, chemical products, rubber and plastic products, Stats SA said.
The trade, catering and accommodation industry decreased by 67.6%. Decreased economic activity was reported in wholesale trade, retail trade, motor trade, catering and accommodation.
The industry was hit hard as only selected essential goods were allowed to be sold during the early stages of the lockdown. In addition, catering and accommodation establishments were severely restricted during lockdown.
The transport, storage and communication industry decreased by 67.9%. Decreases were reported for land transport, air transport and transport support services.
Mining and quarrying decreased by 73.1% and contributed -6.0 percentage points to GDP growth. Owing to global lockdown restrictions, demand for mineral products fell, contributing to decreased production in platinum group metals (PGMs), gold, iron ore, chromium ore and coal.
Finance, real estate and business services decreased by 28.9% and contributed -5.4 of a percentage point to GDP growth. Decreases were reported for financial intermediation, insurance and pension funding, auxiliary activities and other business services.
The agriculture, forestry and fishing industry was the only positive contributor to GDP growth, with an increase of 15.1% and a contribution of 0.3 of a percentage point to GDP growth. The increase was mainly due to increased production of field crops and horticultural and animal products.
The unadjusted real GDP at market prices for the first six months of 2020 decreased by 8.7% compared with the first six months of 2019.
Stats SA’s data marginally outweighed estimates by economists over the last week, who projected that the country’s GDP would fall within the range of -40% to -50%. The South African Reserve Bank’s estimates were pegged at -40.1%.
South Africa’s economy was decimated in the second quarter of the year by the almost complete shutdown of businesses and production under high level lockdowns, which were imposed to curb the spread of the Covid-19 coronavirus.
While the lockdown was gradually eased during the quarter – moving to level 4 in May and then to level 3 in June – the looser restrictions were not enough to boost economic activity over the period.
Lockdown aside, South Africa’s economy was not in a very healthy position to begin with, already in recession, with production and growth severely hampered by recurring power outages, and slow economic reforms, and widespread government corruption.
Economists have flagged concerns that the country’s 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.
Growth is expected to recover in the third quarter; however, South African consumer confidence remains at an almost three-decade low.