Economists generally expect that the economy would have continued its recovery in the last quarter of 2020 – with forecasts mostly around the 5% level – but that the Covid-19 pandemic would see gross domestic product (GDP) shrink by around 7%.
Statistics SA will announce the GDP figures for the final quarter of 2020 and the year as a whole on Tuesday (March 9).
Hugo Pienaar, chief economist at the Bureau for Economic Research, says the team at the University of Stellenbosch expects further economic recovery in the fourth quarter of 2020, but that the figure will not be as strong as the growth in the third quarter compared to the second (when the economy recorded annualised ‘growth’ of more than 66% after the decline of 51% in the second quarter).
The figure to watch
The important figure to watch is the annual growth, which Pienaar says will show that the economy shrank by around 7% compared to 2019, under the assumption that the economy expanded by 5% to 5.5% in the last quarter compared to the preceding three months.
“Actually, it doesn’t really matter if growth in the last quarter was 3% or 6%, the figure for the full year will be around minus 7%,” says Pienaar.
“It will take the SA economy several years to recover to the levels of 2019,” he adds, “based on general forecasts of economic growth of 3% this year and 2.5% next year.”
Pienaar expects total GDP to only recover to pre-Covid levels by the end of 2023 or the beginning of 2024.
The big question
Moneyweb dared to ask what is necessary to stimulate economic growth, fully aware that there is a long list of economic ills.
“I can mention a lot of stuff, but two things stand out,” says Pienaar.
“Number one is that we get enough vaccines and good cooperation between government and the private sector to roll [the vaccination programme] out efficiently. That is the biggest boost we can give the economy.”
It stands to reason that confidence will improve and economic activity will pick up when the pandemic is brought under control.
“The second, and equally important [requirement], is that we solve SA’s energy situation,” says Pienaar.
“There is a lot to do. Even if Eskom gets its house in order, we will still have a shortage. We need regulatory changes to enable private generation and [to] deliver energy into the national grid. It is of critical importance over the next 12 to 18 months.”
Enabling private electricity generation will in itself stimulate fixed investment and create jobs.
FNB’s economists sing from the same music score. Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi and Thanda Sithole say about the upcoming GDP figures: “Some green shoots, but still a long road to full recovery.”
Resilience and capacity
They conclude in a recent research note that the release of GDP data on Tuesday will show how resilient various economic sectors were in the last quarter while lockdown restrictions were still in force. More importantly, they say, the data will give an estimation of how much capacity the economy lost in 2020.
“At the start of the pandemic, real GDP loss estimations were large but were subsequently revised lower as economic activity disruptions became less severe than initially feared.”
The authors of the note add: “Indeed, the considerable reduction of interest rates and other monetary policy measures by the Reserve Bank provided much-needed support to households and businesses through, among other things, lower debt-service costs and lower total costs of new debt.
“The external economy also remained supportive, particularly in the third quarter of 2020, when exports contributed a significant 38.3 percentage points to real GDP growth. Recent data shows that this trend might have continued into the fourth quarter, albeit at a slower pace.
“We pencil in quarterly annualised growth of around 6%, which effectively implies that real GDP likely contracted by about 7% in 2020,” they say.
Going forward, FNB expects economic recovery to be supported by a recovery in global demand, as well as sustained domestic monetary policy accommodation. However, the bank’s economists expect a long and difficult recovery to the levels of 2019 “as the pandemic has had a deep and lasting impact on incomes and employment”.
Johann van Tonder, economist at Momentum Investments, also expects the SA economy to have registered positive economic growth in the fourth quarter of 2020.
“Initial indications from high frequency data are that manufacturing production, retail sales and electricity production grew by an annualised and seasonally adjusted rate of respectively 22.3%, 11.5%, and 3.2%, while a nominal trade surplus of R102 billion was registered.”
Van Tonder notes that National Treasury recently adjusted its estimates for GDP growth in 2020 to a negative 7.2% compared to negative 7.8% earlier.
“Treasury also tabled a budget with an estimated economic growth rate of 3.3% in 2021, slowing to 2.6% in 2022,” he says.
Once again the annual figure is the one to watch.
A graph presented by Stats SA when it announced the GDP figures for the September 2020 quarter shows just how irrelevant the large decline in the second quarter and the recovery in the next quarter of 2020 are over the longer run.
Quarter-on-quarter percentage growth in GDP
Looking at the annual figures shows that the SA economy has performed badly over the last decade.
While it grew in 2010 – relative to the shock in 2009 when the world was rocked by the aftermath of the 2008 property and banking crisis in the US – GDP growth has declined year after year since.
Annual GDP growth
The graph also shows the severity of the expected contraction of 7% in 2020 – making the disaster of 2009 look mild.
“It will take difficult decisions and drastic action to get the economy back on track,” says Pienaar, without mentioning the stumbling block most people see – the fact that government lacks the political will to make unpopular decisions and implement them.
Listen to Nastassia Arendse’s interview with Duncan Pieterse, deputy director-general of economic policy at National Treasury (or read the transcript here):