October data confirm slowdown in SA economy - Capital Economics
Africa Economics

October data confirm slowdown in SA economy

Africa Economics Update
Written by Virag Forizs

South Africa’s hard activity data for October serve as a reality check following a decent rebound in GDP in Q3, suggesting that the pace of the recovery slowed markedly at the start of Q4. A second wave of COVID-19 has increased the possibility of a further tightening of containment measures which, coupled with harsh fiscal austerity, means that a lacklustre rebound lies ahead.

  • South Africa’s hard activity data for October serve as a reality check following a decent rebound in GDP in Q3, suggesting that the pace of the recovery slowed markedly at the start of Q4. A second wave of COVID-19 has increased the possibility of a further tightening of containment measures which, coupled with harsh fiscal austerity, means that a lacklustre rebound lies ahead.
  • Activity data published by Stats SA today showed that manufacturing and mining output contracted more sharply at the start of Q4. In the manufacturing sector, following a 1.9% y/y drop in September, production fell by 3.4% y/y in October. (See Chart 1.) And the 3.4% y/y decline in mining output in September was followed by a 6.3% y/y fall in October. (See Chart 2.) Figures released earlier this week showed that retail rales were still down by 1.8% y/y in October. (See Chart 3.)
  • The hard activity data suggest that the strong rebound in GDP in Q3 already fizzled at the start of Q4. Since the move to the lowest lockdown level in September, the authorities have re-imposed some restrictions in recent weeks in an effort to curb rising daily new cases of COVID-19. More recent survey data point to a sharp slowdown in activity in the manufacturing sector in the middle of Q4.
  • The headwinds facing the recovery are building. The authorities announced yesterday that South Africa has “officially” entered a second wave of the virus, and it looks increasingly likely that a further tightening of containment measures may follow. Vaccines are unlikely to be rolled out before mid-2021. Meanwhile, harsh austerity plans, including a three-year public sector wage freeze, will weigh on incomes.
  • Data also released today showed that the current account swung from a deficit of 2.9% of GDP in Q2 to a surplus of 5.9% of GDP in Q3 as exports posted a strong rebound but weak domestic demand continued to weigh on imports. (See Chart 4.) These dynamics are likely to remain in place over the coming quarters and it will take some time for the surplus to shrink. This, combined with a further improvement in global risk appetite, is likely to support a further appreciation of the rand against the dollar over the next year.

Chart 1: Manufacturing Production (% y/y)

Chart 2: Mining Production (% y/y)

Chart 3: Retail Sales (% y/y)

Chart 4: Current Account Balance (% of GDP)

Sources: Stats SA, SARB, Refinitiv, Capital Economics


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