South Africa GDP (Q1) - Capital Economics
Africa Economics

South Africa GDP (Q1)

Africa Data Response
Written by Virag Forizs

The fall in South Africa’s GDP in Q1 provides an early sign of the massive economic hit from the country’s severe lockdown measures and supports our view that further interest rate cuts lie in store.

Signs of severe economic hit emerging

  • The fall in South Africa’s GDP in Q1 provides an early sign of the massive economic hit from the country’s severe lockdown measures and supports our view that further interest rate cuts lie in store.
  • As measured by the production approach, South Africa’s economy shrunk by 2.0% q/q at a seasonally-adjusted annualised rate (saar). (See Chart 1.) The Q1 outturn was stronger than our forecast of a 2.3% fall, as well as the Bloomberg consensus forecast of a 4.0% contraction, but it was still the third consecutive quarter in which economic output has declined.
  • The production breakdown showed that key sectors faltered in Q1. Mining production tumbled by 21.5% q/q saar and manufacturing output was down by 8.5% q/q saar. The headline rate would have been worse if not for the agricultural and finance sectors, which expanded by 27.8% and 3.7% q/q saar respectively. (See Table 1.) On the expenditure side, fixed investment and inventories were key drags.
  • The data are largely old news at this point. The government imposed a severe lockdown in late-March causing activity to tumble. The economy came to a standstill at the height of restrictions in April; mining production plunged by 30.4% m/m and the manufacturing PMI points to a dramatic fall in output in that sector too.
  • More recently, as the lockdown has gradually eased activity has started to pick up. The May manufacturing PMI figure showed conditions improving in the sector. But we think that the recovery will probably be slow-going. Our Covid Recovery Tracker, based on travel data (including to retailers and workplaces) suggests that activity remains about 40% below pre-virus levels.
  • Today’s data support our view that South Africa will suffer one of the biggest blows to its economy from the coronavirus crisis in the emerging world. We hold a below-consensus view that GDP will fall by around 11% this year. (See here.) Policymakers at the central bank will probably do more to try to shore up the economy in the coming months. We’ve pencilled in 75bp in further cuts by end-2020.

Chart : South Africa GDP

Source: Stats SA

Table 1: South Africa GDP

GDP

Agriculture

Mining

Manufacturing

Construction

Trade, Catering

% q/q saar

% y/y (SA)

% q/q saar

% q/q saar

% q/q saar

% q/q saar

% q/q saar

Q2 2019

3.4

1.0

-4.9

17.4

2.1

-2.4

3.4

Q3 2019

-0.9

0.2

-4.5

-6.1

4.4

-6.9

2.6

Q4 2019

-1.4

-0.5

-7.6

1.8

-1.8

-5.9

-3.8

Q1 2020

-2.0

-0.2

27.8

-21.5

-8.5

-4.7

-1.7

Source: Stats SA


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com