Treasury revises GDP to show smaller contraction in 2020
By Helmo Preuss
PRETORIA - The National Treasury has revised its forecast of the contraction in the South African economy to 7.2 percent from the 7.8 percent forecast in October 2020.
It however expects a quarterly contraction in the first quarter 2021, so the contraction for the fiscal year 2020/21, which runs from April 2020 to March 2021, is larger at 8.3 percent.
Nominal changes in GDP for the fiscal years are 4.6 percent growth for 2019/20, then a 4.4 percent contraction for 2020/21, an 8.8 percent percent bounce in 2021/22 followed by a 5.9 percent rise in 2022/23.
As nominal GDP is the denominator for a host of key metrics such as the fiscal deficit to GDP ratio and the debt to GDP ratio, the raising of the nominal GDP is important for the bond market.
The full calendar year GDP data will be released on March 2, but the fiscal year 2020/21 data will only be available on June 1.
In addition to its base line projection of growth of 3.3% in 2021, 2.2 percent in 2022 and 1.6 percent in 2023, Treasury outlined two additional economic growth scenarios.
In Scenario A it projected stronger growth as rapid increases in electricity supply and faster reform implementation boosted performance.
The reforms required to achieve this include rapid regulatory adjustments, such as raising electricity licensing thresholds, that would ease the impact of load-shedding on firms and households.
Scenario B however sees slower growth as it reflects the effects of two more waves of Covid-19 infections, assuming the vaccine rollout has a limited effect on stemming the spread of infections.
This requires stricter mitigation measures that depress economic activity. In this scenario, vaccine rollout only gains traction in 2022.
Economic recovery is delayed and the momentum from late 2020 is reversed, leading to long-lasting effects and further reducing growth potential.
The hospitality and tourism, entertainment, trade, services and transport sectors are particularly negatively affected.
The economy grows by only 1.6 percent in 2021 and economic activity levels remain lower than currently forecast over the long run.