Africa|Business|Construction|Engineering|Export|Financial|Health|Industrial|Manufacturing|Mining|Power|Seifsa|Services|Steel|Manufacturing |Power Generation|Power-generation|Infrastructure
Africa|Business|Construction|Engineering|Export|Financial|Health|Industrial|Manufacturing|Mining|Power|Seifsa|Services|Steel|Manufacturing |Power Generation|Power-generation|Infrastructure

Commenters call for an end to lockdown as second-quarter GDP contracts sharply

8th September 2020

By: Tasneem Bulbulia

Senior Contributing Editor Online


Font size: - +

South Africa’s real gross domestic product (GDP) decreased by just over 16% between the first and second quarters, resulting in an annualised growth rate of ‑51%.

This has extended the economic recession into its fourth quarter.

Nearly 91% of industrial sectors performed poorly, with the manufacturing sector recording the largest negative contribution to GDP growth, at -10.8 percentage points.

Professional services firm PwC said that, with the exception of agriculture, which expanded by 15.1% quarter-on-quarter in the second quarter, all other industries contracted.

Mining, manufacturing and construction all declined by more than 70% quarter-on-quarter.

PwC expects the third-quarter GDP data to be less negative compared with that of the second quarter and for the economy to contract by an average of 10.4% for the full year.

The South African Reserve Bank (SARB) is expected to revise its recession forecast next week and this could open the door for additional interest rate cuts, the firm states.

Non-profit organisation Sakeliga, meanwhile, said the second-quarter GDP contraction was a “man-made disaster.”

Financial services provider Citadel Investment Services chief economist and advisory partner Maarten Ackerman added that the fact that South Africa was already battling a recession before the pandemic hit meant that the virus may finally have tipped the economy over the edge into a depression – with alarming implications for the country’s fiscal health.

“South Africa already printed two quarters of negative economic growth in the second half of 2019, and this declining trend unfortunately carried on into the first quarter. In fact, the year-on-year figure revealing a 17.1% decline in GDP over the 12 months to the end of June is perhaps even more telling than the quarterly figure.

"So, even without the burden of Covid-19, the economy would likely have continued to decline in the second quarter. Arriving on top of these pre-existing structural issues, Covid-19 was simply the straw – or rather the sledgehammer – that broke the camel’s back, resulting in these shocking quarter two figures,” he said.

Trade union Solidarity Research Institute posited that the contraction was not the result of the Covid-19 virus, but rather, attributed it to the country’s approach to the national lockdown.

According to Solidarity, the situation was being aggravated by the dire state the country’s economy was in even before the arrival of the virus.

“Irrational lockdown measures in such circumstances are absurd,” posited the organisation.

The countrywide lockdown to fight the spread of Covid-19 from March 27 severely affected economic activity in the second quarter as real output contracted, plunging the economy deeper into depression, industry organisation Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Dr Michael Ade said.

“The impact of the nationwide economic shutdown is visible in the numbers as there was virtually no economic activity in April, spanning lockdown Alert Level 5. Many companies, including the large entities, were not ready for the sudden shock that impacted negatively on supply chains and on global demand and exports,” he noted.

He said the data, which provides a fair depiction of overall domestic consumer-derived demand and industrial production, provides insight to what the country can expect in terms of other macroeconomic data, including the employment numbers, the release of which has been postponed to later this month.

Ade said that, as unemployment rises, middle-class income stagnates or even declines, reducing the pool of buyers for goods produced by business, which leads to reduced business activity and investment.

He said the poor GDP figures were underpinned by poor year-on-year growth in manufacturing production data, low sales and a generally poor business expectation for the relevant quarter, despite an uptick in the manufacturing purchasing managers index in May and June.

“In addition, production costs in the second quarter were higher than in the first quarter, as scarcity and higher demand for inputs pushed prices and operational expenses up. Companies were in uncharted territory where they had to still incur costs, despite the lockdown, but could not produce and sell.

"The situation was made precarious by prevailing subdued domestic demand and the companies’ inability to explore new markets or export. These impediments also affected their margins negatively,” Ade said.


Ade lauded ongoing initiatives to improve supply-side dynamics that could boost third-quarter growth as the economy opens up, further supporting  the expansion of the metals and engineering (M&E) subcomponents in the short to medium term.

He cited the implementation-oriented Infrastructure Investment Plan for South Africa and the Steel Master Plan, which are aimed at reigniting business activity via improved trade, domestic demand and competitiveness, as holding huge potential for the M&E industry.

Ade said that, although manufacturing production levels dropped significantly in April, May and June, the expectation was for a better performance in the third quarter of the year.

“Industrial production can only go up from the abyss businesses found themselves in because of the Covid-19 pandemic. Broader recovery is a must, given the importance of the manufacturing sector – including its M&E subcluster – in boosting local jobs and economic growth,” Ade said.

Ackerman said that while the country could expect a sharp rebound in the third and fourth quarters of this year, with the gradual reopening of the economy (especially coming off a low base), the country could still expect the economy to shrink some 8% in 2020. He noted that this is worse than the 6% decline recorded during the depression years of the 1930s. 

“Again, the extent of this decline is arguably more attributable to the action taken to close down the biggest part of the economy rather than a result of economic factors. But ultimately, until the country implements the reforms already on the table and successfully addresses the structural issues keeping economic growth below capacity, we will continue to see increasing unemployment, inequality, and poverty,” he said.

North West University Business School economist Professor Raymond Parsons said that how quickly countries fare post Covid-19 will be determined by how quickly their economies and societies recover from their respective lockdowns.

He also reiterated the country’s dire state prior to the lockdown and said that, in the short term, economic recovery in the country would depend on the degree of recovery in the world economy, implementing existing economic support measures more effectively, and on the pace at which the remaining lockdown measures are phased out.

He said that while the economy would gradually regain momentum, tough months were still ahead before business and consumer confidence was rebuilt.

He noted that the latest economic data suggested that it would be helpful to the country’s economic recovery if the Monetary Policy Committee at its meeting next week cut borrowing costs further by reducing the repo rate again.

Also, he said that the next Medium Term Budget Policy Statement in October must clearly show that the country is serious regarding control over its public finances and is taking credible steps to do so.

Sakeliga posited that the country’s recovery starts with ending the lockdown, and called for the government to do so immediately, including opening international air travel and not extending the state of disaster beyond its next expiry date on September 15.

Solidarity called on the government to “take the worsening economic crisis seriously and to withdraw from managing it”.

“Abolish the lockdown immediately, deregulate as much as possible and allow private power generation,” it said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online



Yale Lifting Solutions
Yale Lifting Solutions

Yale Lifting Solutions is a leading supplier of lifting and material handling equipment in Southern Africa. Yale offers a wide range of quality...

M and J Mining
M and J Mining

M and J Mining are leading suppliers of physical support systems as used by the underground mining industry. Our selection of products are not...


Latest Multimedia

sponsored by

Photo of Martin Creamer
On-The-Air (07/06/2024)
7th June 2024 By: Martin Creamer

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
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?







sq:2.572 2.637s - 180pq - 2rq
Subscribe Now