Key South African data released this week suggests a record economic contraction in the second quarter as the damage wrought by a nationwide lockdown to curb the spread of the coronavirus pandemic becomes clear.
Manufacturing production, mining output and retail sales plunged in the three months through June as the country imposed a strict lockdown on 27 March that shuttered almost all activity except essential services for five weeks.
With mining and manufacturing contributing about a fifth of total gross domestic product and trade, which includes retail, making up 15%, the drop means the recession probably became much deeper in the second quarter.
Africa’s most-industrialised economy contracted an annualised 2% in the three months through March, extending its recession to a third-quarter even before the impact of the global pandemic and measures to curb its spread were felt.
Reserve Bank forecasts show an annualised drop in GDP of 32.6% for the three months through June from the previous quarter.
That would be the deepest quarterly decline since at least 1990 and is conservative relative to Investec Bank Ltd’s estimate of a 48.2% annualised contraction. The statistics office is scheduled to publish GDP data for the second quarter on 8 September.
The government started a gradual and phased re-opening of the economy on May 1 and restrictions were eased to so-called level 3 a month later. However, the closure of some businesses and scaled down operations that have lead to job losses are expected weigh on demand, slowing the recovery.
The National Treasury sees the economy contracting by 7.2% this year, the most in almost nine decades.
What Bloomberg’s economist says…
“Bad as it is, the 2Q contraction in growth has already happened. What matters now is the strength and pace of recovery.
“With restrictions now lifted on most sectors, the main constraint on growth will shift away from the ceiling created by containment measures and onto demand. The latest data already point to slowdown of momentum — an indication that economic activity and demand remains subdued. We therefore expect a weak recovery.”
– Boingotlo Gasealahwe, Africa economist