SA: lockdown easing, but clouds hang over outlook - Capital Economics
Africa Economics

SA: lockdown easing, but clouds hang over outlook

Africa Economics Update
Written by Virag Forizs

The announcement over the weekend that South Africa is further easing containment measures will probably give a much-needed boost to activity as much of the economy is allowed to reopen. But it looks like a lot of damage has already been done and the country’s recovery will be fragile.

  • The announcement over the weekend that South Africa is further easing containment measures will probably give a much-needed boost to activity as much of the economy is allowed to reopen. But it looks like a lot of damage has already been done and the country’s recovery will be fragile.
  • President Cyril Ramaphosa on Saturday announced the easing of South Africa’s national lockdown from level three down to level two, tying the decision to a drop in daily new cases of Covid-19 from 13,000 in mid-July to below 4,000. We previously highlighted the possibility of the move, which takes effect today.
  • Restrictions on businesses under lockdown level two are almost entirely scrapped (although social distancing measures will remain in place). Key sectors, including manufacturing and retail, can now fully reopen having been limited to 80-85% capacity. (See Table 1.) The elimination of the ban on interprovincial travel will boost transport services, one of the hardest hit sectors. By our estimates, about 85% of the economy will now be open, compared with 75% in stage three of the lockdown and less than half in April.
  • The loosening of restrictions will resuscitate an economic recovery that has stalled in recent weeks. Our Mobility Tracker suggests that activity levelled off since July and car sales fell more sharply last month compared with June. (See Charts 1 & 2.) As in earlier rounds of lockdown easing, some pent-up demand will be released. And businesses are likely to scale up supply as restrictions on their operations are lifted.
  • But South Africa’s economy is by no means out of the woods. The resurgence of the virus is certainly a possibility, especially given that daily new cases remain relatively high. In any event, the authorities outlined harsh austerity from 2021, which will hold back demand. The weak public finances will tie policymakers’ hands when they publish a business recovery plan in the coming weeks. After suffering one of the worst downturns in Q2, South Africa’s economic rebound will be slow, weak and full of obstacles.

Chart 1: CE South Africa Covid Mobility Tracker
(% Relative to Jan.-6th Feb. median, 7d avg.)

Chart 2: New Car Sales (% y/y)

Sources: Google, Apple, Oxford, Refinitiv, Capital Economics

Sources: NAAMSA, Capital Economics

Table 1: Permitted Operations By Sector & Economic Openness Indicator (CE Estimates, %)
Sources: Stats SA, Department of Health, Capital Economics

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