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    Home » News » South Africa’s economy will probably shrink by 8% this year

    South Africa’s economy will probably shrink by 8% this year

    By Agency Staff21 August 2020
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    Slow reforms and the return of rolling power cuts in South Africa could threaten the recovery of an economy that probably bottomed in the second quarter.

    The economy will probably shrink by 8% in 2020, according to the median estimate of 29 economists in a Bloomberg survey that was published on Friday. That’s worse than the 7.5% contraction projected a month ago.

    The government started a phased re-opening of the economy on 1 May and restrictions were eased further to so-called level 2 this week. However, business closures and job losses due to the lockdown that shut much of the economy, as well as blackouts imposed by state-owned utility Eskom from July, threaten output. The state still lacks a clear plan to revive the economy and reforms such as the sale of spectrum and easing visa regulations have stalled.

    The state still lacks a clear plan to revive the economy and reforms such as the sale of spectrum and easing visa regulations have stalled

    “The single biggest risk to growth is slow progress on reforms,” said Mpho Molopyane, an economist at Rand Merchant Bank. “Protracted periods of load shedding definitely pose risks,” he said. The rebound could also be delayed if the global economy takes longer to recover back to pre-Covid levels, he said.

    South Africa’s economy was already in its third quarter of a recession by the time the government imposed a strict lockdown on 27 March. That caused manufacturing production, mining output and retail sales to plunge in the three months to end-June, and the recession probably deepened.

    Record contraction

    “High-frequency data certainly points to the economy bottoming out in April and May, with the second quarter likely to see a record contraction,” said William Attwell, the London-based practice leader for sub-Saharan Africa at DuckerFrontier.

    Central bank forecasts show an annualised drop in gross GDP of 32.6% for the three months to end-June from the previous quarter. The median estimate of 10 economists in a Bloomberg survey is for a contraction of 42.1%. That would be the deepest quarterly decline since at least 1990. The statistics office is scheduled to publish GDP data on 8 September.

    Central bank forecasts show an annualised drop in gross GDP of 32.6% for the three months to end-June

    The central bank reduced its key interest rate by 300 basis point this year to prop up the economy, while emphasising that it can’t boost economic growth alone. However, on Thursday, governor Lesetja Kganyago said muted inflation gives room to respond to the damage caused by the pandemic if the nature of the shock turns out to be worse than forecast.

    South Africa’s economy remains stuck in the longest downward cycle since World War 2, even as activity is expected to rebound off a low base next year. GDP could expand 3% in 2021 and 1.9% in 2022, according to the economists’ estimates.

    Output will probably improve in the three months to end-September as the global economy gains momentum and business activity picks up as lockdown restrictions are eased, but demand is likely to remain weak throughout the year, Atwell said.  — Reported by Prinesha Naidoo and Sarina Yoo, (c) 2020 Bloomberg LP



    DuckerFrontier Eskom Lesetja Kganyago Mpho Molopyane Rand Merchant Bank William Attwell
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