President Cyril Ramaphosa. Henk Kruger/African News Agency
President Cyril Ramaphosa. Henk Kruger/African News Agency

Economy rebounds significantly in Q3 following ease of restrictions

By Siphelele Dludla Time of article published Dec 21, 2020

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The South African economic slump improved significantly in the third quarter from the heavily depressed level in the second quarter due to easing of lockdown measures.

Experian South Africa’s quarterly Business Default Index (BDI) for quarter three, released yesterday (MON), showed that the economy rebounded to its best level this year.

The BDI improved sharply in the third quarter, rising from its extremely depressed level of -3.728 in the second quarter to -1.402 in the third quarter.

It revealed that all 10 sectors of the economy showed improvement in growth, with those sectors which had experienced the steepest declines during the stringent lockdown of the second quarter.

Experien’s Jaco van Jaarsveldt said the Covid-19 pandemic played a significant role in bringing about a deterioration in the BDI in previous quarters.

Van Jaarsveldt said many sectors saw activity declining by between 50 percent and 100 percent through the course of April specifically.

“Domestically, it has been observed that a variety of economic indicators have progressively improved with the relaxation of lockdown restrictions, as human behaviour and business conditions gradually aspired to return to normality,” van Jaarsveldt said. .

“This was the dominant trend in economic activity and the debt metrics of businesses overall in the third quarter.”

Experian said businesses and consumers benefited in the third quarter from the fiscal and monetary stimulus packages introduced.

Besides the recovery in economic growth, the other important factor contributing towards the improvement in the BDI was the decline in outstanding debtors’ days as a reflector of the financial position of businesses.

Overall debtors’ days outstanding fell dramatically from a decade-long high of 64.5 days in the second quarter and 59.8 days in the first quarter, to just 55.2 days in the third quarter.

“It seems that the increase in the economic activity post lockdown has supported stronger cash flows which resulted in an overall improvement in debtors’ days, notwithstanding the fact that the 30:60 day measure has deteriorated,” van Jaarsveldt said.

Experian said whilst continued recovery was foreseen in the year ahead, it was unlikely to be nearly as dramatic as that witnessed in the third quarter alone.

Van Jaarsveldt said that South Africa was likely going to experience the recovery losing some momentum in the coming months.

“The best that one can hope for is that the rate of deterioration in business debt conditions in the short to medium term will simply become much more temperate,” he said.

“We thus recommend businesses to remain very focused on cash flow management, ensuring stock holding aligns with both capacity restrictions and consumer demand.”

BUSINESS REPORT ONLINE

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