South Africa: Economy in the doldrums - Capital Economics
Africa Economics

South Africa: Economy in the doldrums

Africa Economics Update
Written by Virag Forizs

The sharp fall in South Africa’s GDP in Q4 not only marked a technical recession, but also set up a very weak starting point for 2020. And downside risks are growing with the spread of the coronavirus.

  • The sharp fall in South Africa’s GDP in Q4 not only marked a technical recession, but also set up a very weak starting point for 2020. And downside risks are growing with the spread of the coronavirus.
  • Figures released earlier today showed that South African GDP contracted by 1.4% q/q in Q4 at a seasonally-adjusted, annualised rate (q/q saar), pushing the economy into its second technical recession in two years. (See Chart 1.) This was a sharper decline than the downwardly revised 0.8% fall recorded in Q3, and much worse than our estimate of -0.1%. With the latest reading, South Africa’s economy has contracted in four out of seven quarters since President Cyril Ramaphosa took office.
  • On the production side, virtually all sectors of the economy recorded a fall in output in Q4. (See Chart 2.) Admittedly, the finance sector grew. And mining output also expanded, but only after a terrible performance in Q3, which set a low base for the sector.
  • The agricultural industry contracted more sharply at the end of 2019 compared to Q3. And the trade, catering and accommodation sector shifted from a contributor to growth to being a drag. Tourist arrivals actually rose, so the overall fall in the category was down to locals cutting back their spending. Problems in the power sector escalated in Q4, which probably weighed on economic activity.
  • On the expenditure side, the pick-up in investment in mid-2019 vanished in Q4; gross fixed capital formation fell by 10% q/q saar. This was weakest reading since late 2015. All forms of investment declined in Q4, suggesting that firms remain worried about the outlook for the economy.
  • The terrible Q4 result pushed down growth in South Africa to just 0.2% over 2019 as a whole, the worst result since 2009. This has created a very weak starting point for 2020. Early signs of the economy’s performance this year gave little reason for optimism. Electricity problems at Eskom continued into 2020, and will remain a drag on activity in energy-intensive sectors. Recent survey figures have also been downbeat. The manufacturing PMI dropped to a ten-year low in February.
  • The coronavirus is adding to headwinds facing the economy. We’ve recently revised down our global growth forecast in light of the accelerating spread of the virus. And with cases confirmed in Sub-Saharan Africa, we are in the process of re-evaluating our forecasts for the region, including South Africa. The virus only strengthens our view that growth in South Africa will be very weak in 2020. This raises the likelihood that the current easing cycle may have further to run than we have previously thought.

Chart 1: GDP (% q/q saar)

Chart 2: GDP By Sector (% q/q saar)

Sources: Stas SA, Refinitiv, Capital Economics

Sources: Stas SA, Refinitiv, Capital Economics


Virág Forizs, Emerging Markets Economist, +44 20 7808 4079, virag.forizs@capitaleconomics.com