South African economy contracts 7% in 2020

South African economy contracts 7% in 2020

South Africa’s economy rebounded 6.3% quarter on quarter on a seasonally-adjusted and annualised basis in the fourth quarter of 2020 coinciding with the further easing of restrictions, according to Statistics SA.

In the fourth quarter of 2020, eight industries including manufacturing (21.1%), trade (9.8%) and transport (6.7%) were the largest positive contributors to the rebound. The economy, however, recorded decreases in mining (1.4%) and finance (0.2%) during the period which coincided with employment decreases of 35 000 and 123 000 people respectively.

Household final consumption expenditure increased at a rate of 7.5% in the fourth quarter, contributing 4.7 percentage points to total growth, with the largest contributors to expenditure on restaurants and hotels (217.9%, contributing 1.8 percentage points), food and non-alcoholic beverages (6.6%, contributing 1.3 percentage points), and recreation and culture (20.9%, contributing one percentage point).

The rebound however was unable to lift the ailing economy out of the doldrums.

This was expected as people increased their movement and economic activity, according to Statistician-General Risenga Maluleke, who presented the data on Tuesday.

The country’s economy contracted by an estimated 7% in 2020, compared with an increase of 0.2% in 2019.  The contraction is in line with market expectations following the outbreak of the coronavirus and the subsequent lockdown which was implemented to curb the spread of the pandemic.

Inequality up

The pandemic has exacerbated existing inequalities in the country, leading to the number of unemployed people increasing by 701 000 to 7.2 million in the final quarter of 2020.

By the expanded definition, 11.1 million in the country are unemployed.

The economy is expected to rebound over the medium term with the rollout of a vaccination programme and the further easing up of restrictions. According to the February 2021 budget estimates, GDP growth of 3.3% is projected for 2021, moderating to an average of 2.2% in 2022 and 1.6% in 2023.

The sharp contraction in 2020 was mainly led by decreases in manufacturing, which contributed -1.4 percentage points based on growth of -11.6%; trade, catering and accommodation, which contributed -1,3 percentage points based on growth of -9.1%; and transport, storage and communication, which contributed -1,3 percentage points based on growth of -14.8%.

The agriculture, forestry and fishing industry increased by 13.1% in 2020, and the general government increased by 0.7% in 2020.

Stats SA further announced on Tuesday that it would be publishing the quarter-on-quarter real GDP growth rate as the headline rate.

“The quarter-on-quarter annualised rate shows what the annual growth rate would be if the quarter-on-quarter rate were to occur over four consecutive quarters. During periods of steady economic growth, annualising is a useful way of expressing quarter-on-quarter performance in annual terms,” Stats SA said.

However, during periods of economic instability such as Covid-19 annualising can be misleading, because it exaggerates growth rates that are unlikely to be repeated. This was shown during 2020 when the second-quarter GDP contracted by 51% quarter-on-quarter, rebounding by an annualised rate of 66.1% in the third quarter.