South Africa exits recession but faces long road to full recovery
South Africa exits its longest recession in 28 years, but may not recapture pre-COVID-19 levels until 2025, says economist.
South Africa’s economy may only get back to pre-Covid 19 levels by 2025 and remains vulnerable to a local resurgence of the pandemic, even after exiting its longest recession in 28 years.
Gross domestic product expanded an annualized 66.1% in the three months through September from the previous quarter following a 51.7% decline in the second quarter, Statistics South Africa said Tuesday in the capital, Pretoria. That was more than projected and the first positive number after four periods of contraction.
However, compared with the same period last year, GDP shrank by 6%, the second straight quarter of decline. On a non-annualized basis, the economy expanded 13.5% from the previous quarter.
The rebound in the quarterly figure was expected as output resumed in Africa’s most-industrialized economy after most activity was shuttered because to a strict nationwide lockdown. The recovery remains at risk, with power shortages and slow structural reforms likely to weigh on sentiment.
What Bloomberg Economics Says
“The recovery is already losing momentum while a resurgence in Covid-19 may call for tighter containment measures. We expect only a modest recovery until vaccines become widely available.”
–Boingotlo Gasealahwe, Africa economist
The median estimate of 14 economists in a Bloomberg survey was for a 54.4% increase in output. The rand gained as much as 0.8% to 15.0331 against the dollar, the strongest level since February.
Getting back to pre-Covid level could take at least five years and “this is only on condition that we stick to reforms,” independent economist Thabi Leoka said by phone. Unlike after the 2008-09 crisis when South Africa’s economy was propped up by strong global growth, the country can’t rely on a linear international rebound to lift its GDP, she said.
For the nine months through September, GDP contracted by 7.9% from last year. That’s the clearest indication of how much the economy could shrink for the full year and is in line with forecasts from the government and central bank.
A resurgence of the pandemic in South Africa is among the key downside risks to growth next year, according to Hugo Pienaar, chief economist at the Stellenbosch-based Bureau for Economic Research. The end of temporary Covid-19 support measures also means the economy will be much less robust in the fourth quarter and going into the first three months of 2021, he said.
Household spending, which makes up about 60% of GDP, increased by an annualized 69.5% from the second quarter. Investment as reflected by gross fixed capital formation, grew 26.5%.
Increased coronavirus cases globally has hit some of South Africa’s major trading partners and sources of tourism income, while a rise in infections at home could see some restrictions reimposed. That would make it more difficult to bring down the official unemployment rate that returned to a 17-year high in the third quarter, improve revenue collection and curb a wide budget deficit and surging government debt.
Other Key Points:
- Agriculture industry rose annualized 18.5% quarter-on-quarter.
- Mining rose annualized 288.3% quarter-on-quarter.
- Manufacturing rose annualized 210.2% quarter-on-quarter.
- Trade industry rose annualized 137% quarter-on-quarter.
- Finance industry rose annualized 16.5% quarter-on-quarter.
- Expenditure on GDP grew annualized 67.6% quarter-on-quarter.
(Updates with economists’ comment from sixth paragraph)
–With assistance from Simbarashe Gumbo.