The manufacturing sector experienced its 10th consecutive monthly decline in March, reflecting the depressed economic environment underpinned by weak demand. Photo: Manish Swarup/AP
The manufacturing sector experienced its 10th consecutive monthly decline in March, reflecting the depressed economic environment underpinned by weak demand. Photo: Manish Swarup/AP

Lockdown collapses SA economic activity as GDP contracts 2%

By Siphelele Dludla Time of article published Jul 1, 2020

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JOHANNESBURG – The economy has sunk deeper into recession after gross domestic product (GDP) contracted by 2 percent in the first quarter, which was better than expected, but economists’ forecasts are bleak, as economic activity has collapsed under the national Covid-19 lockdown.

The economy contracted for the third consecutive quarter, and was well on its way to a 7.2 percent contraction this year – as forecast in the supplementary budget last week – the sharpest decline in 90 years. 

Statistics South Africa (StatsSA) yesterday said real GDP fell by 2 percent between January and March, putting the economy firmly in recessionary territory. This followed decreases of 1.4 percent in the fourth quarter and 0.8 percent in the third quarter of 2019.

By 5pm yesterday, the rand was trading at 17.38 to the dollar. 

StatsSA said seven of the 10 manufacturing divisions reported negative growth rates in the first quarter.

Mining and manufacturing were the main drags on overall activity, slumping a massive 21.5 percent and 8.5 percent, respectively. 

The manufacturing sector experienced  its 10th consecutive monthly decline in March, reflecting the depressed economic environment underpinned by weak demand.

The electricity, gas and water sector contracted 5.6 percent during the quarter, while the construction industry fell 4.7 percent.

The primary and secondary sector contracted 11.8 percent and 7.5 percent quarter on quarter, respectively. 

The tertiary sector was the only sector to deliver positive growth, rising 1.3 percent quarter on quarter.

StatsSA said the agriculture, finance, government, transport and personal services sectors registered positive growth.

The agriculture, forestry and fishing industry increased 27.8 percent.

PPS Investments’ portfolio manager Reza Hendrickse said although the GDP figures were poor, it was better than the expected quarter on quarter contraction of 4 percent. 

Hendrickse said second and third quarter growth would be particularly hard-hit, as activity had ground to a halt during the lockdown. 

“The recession is expected to deepen markedly as the year unfolds, with economic activity having collapsed under the lockdown measures aimed at mitigating the Covid-19 crisis,” Hendrickse said. However, he said that a small rebound was expected towards the end of the year if conditions begin to normalise.

Citadel’s chief economist, Maarten Ackerman, said China’s economic downturn had been a major contributing factor to the contraction in South Africa’s primary industries.

Ackerman said the ban on alcohol and tobacco sales would likely severely affect the second quarter GDP growth, as the second-largest contributor to the first quarter decline was alcoholic beverages, tobacco and narcotics.

“In the next quarter, this will almost be wiped out, because we did not trade in these products for most of the quarter,” Ackerman said.

“Considering that these were showing negative growth already in the first quarter before we went into the full lockdown, we can expect to see a massive decline in those sectors in the second quarter.”

Investec’s Lara Hodes said the economy was projected to contract by 10.1 percent this year.

BUSINESS REPORT

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