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South African economy shrinks by half in second-quarter ‘gut punch’

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(FILES) In this file photo taken on July 13, 2020 A man walks past a closed liquor shop in Soweto. – South Africa’s economy shrank by more than half in the second quarter, an unprecedented decline, as the coronavirus pandemic took its toll on the continent’s most industrialised economy, the statistics agency said on September 8, 2020.<br />Government shut down the country in March 2020 as it scrambled to rein in the spread of COVID-19 coronavirus, pushing the economy into deep recession.<br />The statisticians noted that the ban on alcohol sales were “drags on trade activity”. (Photo by Michele Spatari / AFP)


South Africa’s economy shrank by more than half in the second quarter, an unprecedented decline, as the coronavirus pandemic took its toll on the continent’s most industrialised state, the statistics agency said Tuesday.

The government shut down the country in March as it scrambled to rein in the spread of coronavirus, pushing the economy into deep recession.

“South Africa’s economy contracted by 51%” in the second quarter of 2020 compared with the same period last year, Statistics South Africa said in a statement, adding: “The punch in the gut was severe.”

The record contraction came after a lockdown imposed on March 27 — one of the world’s strictest — caused most economic activity to cease.

The predicted drop in GDP was driven largely by steep declines in the construction, manufacturing and mining sectors, where activity shrank by up to 70 percent.

South Africa’s economy was already in recession — its second in two years — when it was hit by the virus, and had shrunk by two percent during the first three months of 2020.

The second-quarter contraction — the fourth in a row for the ailing economy — “dwarfs the annualised slowdown of 6.1 percent recorded in the first quarter of 2009 during the global financial crisis,” the statisticians said.

Despite the restrictions South Africa, with 639,362 cases and more than 15,000 deaths, is the worst affected country in Africa, accounting for more than half of the continent’s diagnosed cases.

It ranks among the top seven countries in the world in terms of confirmed infections.

In June, Finance Minister Tito Mboweni projected that the economy would shrink by 7.2 percent in 2020 as a result of the coronavirus pandemic, the deepest slump in 90 years.

The anti-virus restrictions also severely affected the tourism industry, one of South Africa’s leading contributors to GDP.

Borders were shut and even domestic travel was curtailed during the three months while restaurants closed and the sale of alcohol was prohibited.

“Spending on restaurants and hotels ground to an almost complete halt, plunging by 99.9%,” StatsSA said.

Alcohol sales were prohibited to ease pressure on hospitals, allowing doctors in emergency wards to focus on Covid-19 rather than road accidents and other booze-related injuries.

‘Shallow recovery’ in 2021
The agriculture sector was the only one that appeared relatively unscathed by the pandemic as it boosted maize exports while enjoying a hike in international demand for citrus fruits and pecan nuts.

While the economy is expected to start picking up in the third quarter as the lockdown restrictions have gradually been eased, “electricity supply constraints are likely to curb the sustainability of the recovery,” warned Sanisha Packirisamy, an economist at Momentum Investments.

The electricity supply company Eskom last week resumed rationing power because of breakdowns at its ageing coal-powered plants.

“We expect growth to contract by 8.1% this year and are pencilling in a shallow recovery of 2% in 2021, as an increase in the number of business closures, persistently higher levels of unemployment and ongoing challenges to electricity supply detract from the expected upturn,” Packirisamy said in a note.

The UN forecasts that it will take around five years for South Africa’s economic activity to return to pre-pandemic levels.


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