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GDP: As bad as expected

The economy is on thin ice.
Government expenses continue to rise even as revenue has fallen, making the need for additional funding inevitable. Image: Waldo Swiegers, Bloomberg

The headline ‘Magnitude of GDP collapse expected, but still shocking’ on NKC African Economics analyst Jacques Nel’s research note probably best sums up the reaction to the 51% drop in quarter-on-quarter growth for the second quarter.

The gross domestic product (GDP) figure put out by Statistics SA on Tuesday morning was widely expected to show a drastic cut, but this did not minimise the reaction of disbelief to it.

This figure is the first to scale the extent of the economic decline resulting from the five-week Covid-19 lockdown in the first half of the year, which was meant to stem the spread of the deadly virus.

The move came at a price to the economy.

Read:

Everyone suffered

All sectors saw huge fall-offs in economic activity except for the agriculture, forestry and fishing industry. The manufacturing industry contracted 74.9%; the trade, catering and accommodation industry decreased 67.6%; and the transport, storage and communication industry dropped 67.9%.

There was a similar story with the mining and quarrying industry, which fell 73.1%, while the finance, real estate and business services industry was down 28.9%. The agriculture, forestry and fishing industry increased 15.1%, but this only contributed 0.3 of a percentage point to GDP.

The impact of the lockdown on ordinary South Africans can be seen in household final consumption expenditure (HFCE) plunging 49.8%, contributing -30.8 percentage points to total growth.

Having people locked indoors for over a month resulted in transport expenditure dropping by 71.4%; clothing and footwear by 91.5%; and alcoholic beverages, tobacco and narcotics by 92.4%.

The scale of the blow to the economy is so huge even the presidency felt compelled to put out a statement on it.

“The coronavirus represents a once-in-a-century social and economic crisis, with disruptions to production, a synchronised decline in export markets and a prolonged decrease in demand for many service industries. The economic circumstances created by the pandemic have caused hardship for many South Africans, and threaten the survival of businesses in sectors that are worst affected.

“Having acted swiftly and decisively to save lives and bring the epidemic under control, government’s focus now is on economic recovery.

“The R500 billion emergency relief package announced by the president in April has prevented the worst effects of the pandemic.”

The presidency may be compelled to talk up the country’s resilience, but despite the assistance, the Covid-19 crisis undermined the government’s efforts to get the country’s economy going.

Investment was in reverse 

This can be seen in gross fixed capital formation, a measure of real investment, decreasing 59.9% for the period.

Stats SA said the main contributors to the decrease were construction works, machinery and other equipment, residential buildings, transport equipment, and non-residential buildings.

The closing of the country’s borders also had a knock-on effect. “Weak imports of machinery and other equipment, as well as transport equipment, contributed to the decrease in gross fixed capital formation.”

Slow bumpy recovery

Although things were really bad in the second quarter, they are expected to ease in third. Even so, NKC’s Nel notes that “the recovery will not be as uniform, as some sectors, while permitted to operate, will still contend with a challenging economic environment”.

This view is shared by the Nedbank Group Economic Unit, which said the growth outlook for the remainder of this year remains relatively subdued, although a recovery is expected.

This recovery, however, will be anything but speedy. “The resumption of load shedding, the public sector’s dismal fiscal position and new challenges posed by Covid-19 health protocols will undermine the pace of recovery,” the unit said.

This recovery might not even offset SA’s looming fiscal cliff. This is where the country cannot raise enough money to cover its expenses.

Read: SA to hit fiscal cliff within months

Citadel chief economist and advisory partner Maarten Ackerman, for instance, points out that the lockdown hurt its fiscal position. “Given the fact that most public service workers received salaries during the lockdown, and that government expenses have continued to rise even as revenue has fallen, it was inevitable that government would need to seek additional funding.”

Ackerman adds: “And although we received a loan from the International Monetary Fund, government is now looking to borrow even more just to cover the gap for this short period of time.”

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A bit worse than expected

If the ANC were what Mandela set them out to be, the figures wouldn’t be half as bad given that a total GDP perhaps two has been looted by our comrades at Loot thuli house

And the master leading the pack Mr SG himself

Now our Pres wants us all to help rebuild the economy when his Government’s wage bill is part of the problem and his faction is too weak too address it, one and two the ban of alcohol and tobacco has come back to haunt them.,Punishing the consumer punished the GDP

How can this Government even think of solutions when they are the problem?

Your only solution ANC is the IMF who have their set of rules and conditions

Perhaps our only saving grace?

and they have the audacity to blame the drop in GDP on Covid….the way they handled it is to blame…at least it is not apartheid’s fault…phew!

The barren deserts of austerity lie ahead with hungry stomachs or it’s down the toilet with our friends Zimbabwe and Venezuela. Viva ANC!

“The R500 billion emergency relief package announced by the president in April has prevented the worst effects of the pandemic.”

For the ANC, imagination governs their world. Like this imaginary R500 billion rand.

It’s a fraction of what other countries are doing. Most of it stolen anyway!

Smokkeling cigarettes and alcohol was up 17,000,000%

None of that shows up in VAT system – wait for NDZ presidential election for a big bump in GDP

As CR said, back in March during his 1st Covid-19 public address:

“WE ARE SAVING LIVES”

Fair enough, accepted.

Now, CR you surely KNEW when one decides to lock-down an entire economy, economic collapse would happen. A layman on the street could’ve told you that.

Govt can now deal with its reduced revenue. NO sympathies.

“The economy is on thin ice”
That was way before Covid-19 hit. Spring has arrived and the ice has melted…

Beware of being too negative, the economy can turn around.

We just need a bit of good news from govt., good plans, good strategy.
I’m sure the CR team are doing their best.

Covid-19 is not a small emergency.

End of comments.

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