SA suffers one of the world's worst downturns in Q2 - Capital Economics
Africa Economics

SA suffers one of the world’s worst downturns in Q2

Africa Economics Update
Written by Virag Forizs

The hard activity data from South Africa released this week confirm that the country suffered one of the largest falls in output in Q2 anywhere in the world, at around 22% q/q (63% q/q on an annualised basis). Even though activity has rebounded since April, output remains well below pre-virus levels and there are worrying signs that the recovery stalled in recent weeks.

  • The hard activity data from South Africa released this week confirm that the country suffered one of the largest falls in output in Q2 anywhere in the world, at around 22% q/q (63% q/q on an annualised basis). Even though activity has rebounded since April, output remains well below pre-virus levels and there are worrying signs that the recovery stalled in recent weeks.
  • Activity data published by Stats SA today showed that mining production fell by 1.4% m/m in June, putting a quick end to a recovery that seemed to get underway in May. Figures published earlier in the week showed that retail sales and manufacturing output did at least recover further in June, increasing by 6.4% m/m and 16.8% m/m respectively.
  • Nonetheless, output remains well below pre-virus levels. Despite a stronger-than-expected June, manufacturing production was still 16.2% below pre-virus levels recorded in February. (See Chart 1.) Similarly, retail sales remained 7.6% below February levels in June. (See Chart 2.)
  • Overall, we think that GDP probably contracted by 22% q/q in Q2 (and 63% q/q on an annualised basis), one of the largest falls in output anywhere in the world. Some sectors – most notably hospitality services and construction – have probably seen even sharper falls in output than 20-30% q/q declines suffered by the manufacturing and retail sectors.
  • Worryingly, more recent figures suggest that the rebound in activity has tailed off in Q3, when authorities tightened restrictions in the face of sharply rising coronavirus cases. The South African Chamber of Commerce and Industry’s measure of business confidence barely edged up in July. And car sales fell at a faster pace in July compared to June. (See Chart 3.) This is mirrored by our Mobility Tracker. (See Chart 4.)
  • With fiscal austerity set to kick in, South Africa’s economy recovery is likely to be very weak. We are comfortable with our below-consensus view that GDP will fall by 11% this year. And with inflation likely to remain at the bottom of the Reserve Bank’s target range, we think that policymakers will cut the policy rate further than many currently think. The repo rate will probably be lowered from the current 3.50% to 3.00% by year-end.

Chart 1: Manufacturing Production Index (2015=100)

Chart 2: Retail Sales (ZAR bn, 2015 Prices)

Chart 3: Car Sales (% y/y)

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

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


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