Much ado about South Africa’s recovery - Capital Economics
Africa Economics

Much ado about South Africa’s recovery

Africa Economics Update
Written by Virag Forizs

South Africa’s hard activity data for September point to a lacklustre economic recovery in Q3 but this is unlikely to prompt the Reserve Bank to deliver further monetary stimulus at tomorrow’s MPC meeting – we expect the policy rate to be left unchanged at 3.50%.

  • South Africa’s hard activity data for September point to a lacklustre economic recovery in Q3 but this is unlikely to prompt the Reserve Bank to deliver further monetary stimulus at tomorrow’s MPC meeting – we expect the policy rate to be left unchanged at 3.50%.
  • Activity data published by Stats SA today showed that retail sales grew by just 1.1% m/m in September. (See Chart 1.) In year-on-year terms, sales were down by 2.7%, a weaker outturn than the Bloomberg consensus forecast for a 2.3% fall. Figures released earlier this week were not particularly encouraging either. While manufacturing production rose by 3.2% m/m, mining output shrunk by 0.3% m/m in September. (See Charts 2 & 3.)
  • The hard activity data suggest that the recovery struggled to gather momentum in September, when the authorities further eased containment measures. Admittedly, the move from lockdown level two down to level one took effect towards the end of the month so some of the boost might not be fully reflected. But even so, more recent survey figures paint a similar picture of a lacklustre rebound.
  • Much uncertainty remains about how quickly the economy grew in Q3 as a whole. Our GDP Tracker has, historically, had a good relationship with the official GDP figures, but it underestimated the extent of the downturn in Q2. (See Chart 4.) The contraction in output in services sectors not captured by the Tracker was probably much larger than our model implicitly assumed.
  • By the same token, that implies a stronger rebound in Q3 than the hard activity data suggest. Following a contraction of 16.4% q/q (51.0% in annualised terms) in Q2, we think that GDP probably grew by around 10-11% q/q (or 45-50% annualised) in Q3. That would leave GDP 8.0-8.5% below its pre-virus level.
  • Activity data published this week are unlikely to prompt policymakers at the Reserve Bank to cut the repo rate further when the MPC meets on Thursday. Our estimate of the GDP growth in Q3 is in line with the Reserve Bank’s own forecast of a 45% q/q expansion at a seasonally-adjusted, annualised rate. While the easing cycle is probably over, monetary conditions are likely to stay loose for a long time.

Chart 1: Retail Sales (% m/m)

Chart 2: Manufacturing Production (% m/m)

Chart 3: Mining Production (% m/m)

Chart 4: CE GDP Tracker

Sources: Stats SA, Refinitiv, Capital Economics


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