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Data expected to reveal deeper recession

Economists expect that the second-quarter gross domestic product (GDP) data released tomorrow will show that the economy entered into a deeper recession as the hard lockdown halted business activity. Photo: File

Economists expect that the second-quarter gross domestic product (GDP) data released tomorrow will show that the economy entered into a deeper recession as the hard lockdown halted business activity. Photo: File

Published Sep 7, 2020

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JOHANNESBURG - ECONOMISTS expect that the second-quarter gross domestic product (GDP) data released tomorrow will show that the economy entered into a deeper recession as the hard lockdown halted business activity.

Statistics South Africa (StatsSA) will tomorrow release data showing how the Covid-19 lockdown decimated the economy in the three months to June.

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There are also fears that Eskom’s power cuts could hamper the slight economic rebound expected in the third quarter and leave the economy battered for the rest of the year.

The release of the second-quarter GDP figures will precede the release of the second quarter’s job figures, which were delayed by Covid-19 restrictions.

The economy was already in a technical recession in March, slumping by 2 percent in the first quarter, following two consecutive quarters of negative growth.

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FNB said the economy might have shrank by almost 50 percent in the second quarter compared with the same period last year.

FNB economists said their high-frequency now cast model anticipated that GDP contracted by a seasonally adjusted annualised rate of 47.3 percent quarter-on-quarter.

“Much of the downward pressure is expected to have stemmed from the production side of the economy, particularly mining and manufacturing sectors which are expected to both contract in excess of 70 percent amid stringent lockdown restrictions,” FNB said.

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“Similarly, the trade sector – which encompasses leisure, hospitality, accommodation, as well as discretionary- related products and services – is also expected to weigh heavily on the GDP print.”

The government expects GDP to contract by at least 7.3 percent this year, the largest contraction in nearly 90 years.

The country’s weak growth and its failure to reduce the primary deficit could trigger another downgrade by Moody’s Investors Service, after it put South Africa on alert in February.

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Investment, exports and imports are expected to decline sharply as the massive R500 billion economic relief package has weakened the fundamentals of the government’s finances.

Investec chief economist Annabel Bishop said foreign investors were increasingly concerned over South Africa’s long-term solvency.

Bishop said foreign investors had remained substantial net sellers of South Africa’s government debt in the second half of this year to date, disinvesting to the further value of R18.1bn in July and R18.8bn in August.

“Foreigners continue to disinvest from South African bonds, with a very substantial net sell-off recorded this year to date, of R130bn,” she said.

“March alone accounted for a R66.7bn sell-off, while yields spiked in March, to 12.04 percent for the benchmark 10-year government bond, the highest since 2002.”

Investec cautioned that Eskom’s load shedding would affect the expected rebound. Eskom last week suspended the managers of the Tutuka and Kendal power stations, accusing them of apathetic behaviour, after the utility escalated load shedding to stage 4 due to unplanned breakdowns.

“In turn, this will have a negative impact on the recovery of the economy in the second quarter, which we continue to expect will be very weak, contributing to the -10.1 percent year-on-year drop in GDP for 2020,” Investec said.

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