The news of South Africa’s first quarter GDP contraction for 2020 comes on the heels of contractions of 1.4% and 0.8% in the fourth and third quarters of 2019, respectively. The only silver linings were that the market consensus was for an even bigger downturn of 4% and the performance of the agricultural sector posted a growth surge of 27.8%, driven by rising exports and favourable weather conditions. But overall, the seeds of economic decline look set to reap a bitter harvest.
“Investment had been negative for some time. In Q1 2020, it still fell on an annualised 20.5% basis. Tentative green shoots of consumer recovery , will have been completely overridden by the Covid-19 crisis, and rise in joblessness since then. When an economy’s starting point – even prior to the Covid-19 lockdown – is an unemployment rate that is over 30%, it is difficult to imagine what further deterioration looks like,” Khan wrote.
Also of significant concern was the fact that two major employers, mining and manufacturing, led the downhill trend. Mining activity went off the cliff, falling 21.5% in the quarter while manufacturing activity decreased 8.5%. “This morning’s weak credit extension data suggests that government stimulus plans, with the credit guarantee scheme taking effect in mid-May, has not made much of a difference just yet. It may just have been a case of ‘early days’ for the scheme, but take-up has been weak, and bigger, bolder stimulus policy may be required,” Khan noted.
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