SA probably dodged double-dip recession in Q4 - Capital Economics
Africa Economics

SA probably dodged double-dip recession in Q4

Africa Economics Update
Written by Virag Forizs

South Africa’s hard activity data for December suggest that the economy avoided contraction in Q4, but the pace of the recovery slowed and is likely to remain weak.

  • South Africa’s hard activity data for December suggest that the economy avoided contraction in Q4, but the pace of the recovery slowed and is likely to remain weak.
  • Activity data published by Stats SA today showed that, following a 4.0% y/y fall in November, retail sales contracted by 0.8% y/y in December. (See Chart 1.) The outturn was stronger than the Bloomberg consensus estimate of a 2.3% y/y drop. Industrial activity figures released last week beat expectations too. In December, mining and manufacturing production rose in year-on-year terms (by 0.1% y/y and 1.8% y/y, respectively) for the first time since the height of the pandemic. (See Chart 2.)
  • The better-than-expected activity figures for December suggest that South Africa’s economy avoided a double-dip recession in Q4. In 3m/3m terms, which aligns with quarterly GDP growth, the retail and manufacturing sectors posted growth of 2.8% and 5.2% respectively. This probably offset lingering weakness in the mining sector, where output fell by 0.5% 3m/3m.
  • Based on our GDP Tracker, which has had a good relationship with official GDP figures historically although underestimated recent swings in output, GDP appears to have expanded by around 1.0-1.5% q/q (or 5-6% on an annualised basis) in Q4. (See Chart 3.)
  • More recently, the economic rebound has probably taken a hit as restrictions imposed to curb a second wave of COVID-19 weighed on activity. The authorities tightened containment measures at the end of December and high frequency data point to a sharp drop in visits to retail outlets and workplaces, as well as transport use, in January. (See Chart 4.) Continued power cuts probably dampened activity too.
  • Looking ahead, we think that the recovery will remain sluggish. The government’s vaccination campaign is facing serious hurdles, electricity problems will probably not subside any time soon and harsh fiscal austerity will keep demand subdued. GDP is likely to remain around 2% below its pre-virus path by 2022.

Chart 1: Retail Sales

Chart 2: Manufacturing & Mining Production (% y/y)

Chart 3: CE GDP Tracker

Chart 4: CE South Africa Covid Mobility Tracker
(% Relative to Jan.-6th Feb. median, 7d avg.)

Sources: Stats SA, SARB, Google, Apple, Refinitiv, Capital Economics


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