South Africa GDP (Q2) - Capital Economics
Africa Economics

South Africa GDP (Q2)

Africa Data Response
Written by Virag Forizs

The huge fall in South Africa’s GDP in Q2 confirms our pessimistic outlook for the economy and, with fiscal austerity on the horizon, the recovery will be weak. Policymakers at the central bank will probably do more to support the economy.

Weak recovery lies in store after massive Q2 hit

  • The huge fall in South Africa’s GDP in Q2 confirms our pessimistic outlook for the economy and, with fiscal austerity on the horizon, the recovery will be weak. Policymakers at the central bank will probably do more to support the economy.
  • As measured by the production approach, South Africa’s economy shrunk by 51.0% q/q at a seasonally-adjusted annualised rate (saar) in Q2. (See Chart 1.) The Q2 outturn, which marked the fourth consecutive quarter of declining output, was weaker than the Bloomberg consensus of a 47.2% fall, but somewhat better than our forecast for GDP to contract by 63.0%.
  • The production breakdown showed that output tumbled in all parts of the economy in Q2, except for the agricultural sector. Some services sectors, including the financial and personal services sectors, “only” contracted by around 30% q/q saar, but manufacturing and mining production plunged by 74.9% q/q saar and 73.1% q/q saar, respectively. And output in the construction sector was down by 76/6% q/q saar. (See Table 1.) On the expenditure side, government expenditure held up while household consumption tanked.
  • Following the enormous hit to GDP in Q2, more recent data suggest that the recovery is gaining little momentum. Our Covid Mobility Tracker, based on travel data to retailers and workplaces, points to activity remaining well below pre-crisis levels. And car sales were still down by 26.3% y/y in August. Power cuts that have recently resumed will also weigh on the recovery. And further ahead, the authorities’ harsh fiscal austerity plans are likely to hold back demand.
  • In light of today’s figures, we will revisit our growth outlook for the year as a whole, probably nudging up our forecasts. Even so, the hit to GDP in Q2 is a terrible outturn. And with fiscal austerity on the horizon, the South African economy will struggle to get back on its feet. Policymakers will probably lend more support by cutting interest rates further. We’ve pencilled in 50bp of further cuts by end-2020, to 3.00%.

Chart 1: 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

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

-1.8

0.1

28.6

-21.5

-8.5

-4.7

-1.7

Q2 2020

-51.0

-17.1

15.1

-73.1

-74.9

-76.6

-67.6

Source: Stats SA


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