Africa’s most-industrialised economy will probably shrink by 8%
Slow reforms and the return of rolling power cuts in South Africa could threaten the recovery of an economy that probably bottomed in the second quarter.
Africa’s most-industrialized economy will probably shrink by 8% in 2020, according to the median estimate of 29 economists in a Bloomberg survey that was published on Friday. That’s worse than the 7.5% contraction projected a month ago.
The government started a phased re-opening of the economy on May 1 and restrictions were eased further to so-called level 2 this week. However, business closures and job losses due to the lockdown that shuttered much of the economy, as well as blackouts imposed by state-owned utility Eskom Holdings from July, threaten output. The state still lacks a clear plan to revive the economy and reforms such as the sale of spectrum and easing visa regulations have stalled.
“The single biggest risk to growth is slow progress on reforms,” said Mpho Molopyane, an economist at FirstRand Group’s Rand Merchant Bank. “Protracted periods of load-shedding definitely pose risks,” he said, using the local term for power blackouts. The rebound could also be delayed if the global economy takes longer to recover back to pre-Covid levels, he said.
South Africa’s economy was already in its third quarter of a recession by the time the government imposed a strict lockdown on March 27. That caused manufacturing production, mining output and retail sales to plunge in the three months through June, and the recession probably deepened.
“High-frequency data certainly points to the economy bottoming out in April and May, with the second quarter likely to see a record contraction,” said William Attwell, the London-based practice leader for sub-Saharan Africa at DuckerFrontier.
Central-bank forecasts show an annualized drop in gross domestic product of 32.6% for the three months through June from the previous quarter. The median estimate of ten economists in a Bloomberg survey is for a contraction of 42.1%. That would be the deepest quarterly decline since at least 1990. The statistics office is scheduled to publish GDP data on September 8.
The central bank reduced its key interest rate by 300 basis point this year to prop up the economy, while emphasizing that it can’t boost economic growth alone. However, on Thursday Governor Lesetja Kganyago said muted inflation gives room to respond to the damage caused by the pandemic if the nature of the shock turns out to be worse than forecast.
South Africa’s economy remains stuck in the longest downward cycle since World War II, even as activity is expected to rebound off a low base next year. GDP could expand 3% in 2021 and 1.9% in 2022, according to the economists’ estimates.
Output will probably to improve in three months through September as the global economy gains momentum and business activity picks up as lockdown restrictions are eased, but demand is likely to remain weak throughout the year, Atwell said.
Comments
Announcements
What's On
Subscribe to improve your user experience...
Option 1 (equivalent of R125 a month):
Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format
Option 2 (equivalent of R375 a month):
All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors
including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.
Already a subscriber?
Forgotten your password?
Receive weekly copy of Creamer Media's Engineering News & Mining Weekly magazine (print copy for those in South Africa and e-magazine for those outside of South Africa)
➕
Recieve daily email newsletters
➕
Access to full search results
➕
Access archive of magazine back copies
➕
Access to Projects in Progress
➕
Access to ONE Research Report of your choice in PDF format
RESEARCH CHANNEL AFRICA
R4500 (equivalent of R375 a month)
SUBSCRIBEAll benefits from Option 1
➕
Access to Creamer Media's Research Channel Africa for ALL Research Reports on various industrial and mining sectors, in PDF format, including on:
Electricity
➕
Water
➕
Energy Transition
➕
Hydrogen
➕
Roads, Rail and Ports
➕
Coal
➕
Gold
➕
Platinum
➕
Battery Metals
➕
etc.
Receive all benefits from Option 1 or Option 2 delivered to numerous people at your company
➕
Multiple User names and Passwords for simultaneous log-ins
➕
Intranet integration access to all in your organisation