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Economists and analysts have criticized Statistics South Africa (Stats SA) for leading the second quarter gross domestic product (GDP) data with a decrease of 51%, saying that it gives the impression that South Africa’s economic output fell to the half during the last quarter, which he didn’t do. .
Stats SA on Tuesday (September 8) said that GDP in the second quarter of the year decreased by 51% on a seasonally adjusted annualized basis.
While this figure is accurate, and it is the way the statistics body has historically reported GDP data, scholars argue that it does not reflect the reality of the highly anomalous quarter.
“In a normal world, for most economic data, including GDP data, we like to have annualized data. This is primarily because annualized data allows us to compare data collected over different time periods. This is clearly the case for GDP data, ”said Imraan Valodia Dean of the Faculty of Commerce, Law and Management at the University of the Witwatersrand.
“Typically, from quarter to quarter, GDP data does not fluctuate dramatically, so annualized data is a useful approach, and we can compare GDP growth rates in this annualized way.
“However, in cases where the quarterly data can fluctuate dramatically, as has been the case with Covid-19 and the blockade, this calculation, to annualize the estimate, is very misleading, because it assumes that the economic effects of a lockdown will continue as it did during the second quarter, for four consecutive quarters, ”he said.
The decline seen in the second quarter is highly unlikely to continue as economies have now opened, making the 51% figure unrepresentative.
This has been echoed by several other economists and academics, including Professor Philippe Burger, Vice Chancellor for Poverty, Inequality and Economic Development at the University of the Free State.
“There should be a word of caution before we go off the rails, and it relates to how we understand the 51%. The economy in the second quarter is not half its size in the first quarter, ”he said.
“51% is an annualized rate, that is, we take the contraction of the second quarter and ask: ‘If the whole year looks like this, how much will the economy contract?’ Production in the second quarter was 16.4% lower than in the first quarter. That’s bad as it is, but the whole year won’t look like the second quarter; presumably there will be a rebound as we speak, in the third and fourth quarters, ”Burger said.
He said that the economic contraction will likely be less than 10% in 2021.
“On a year-on-year basis, GDP in the second quarter of 2020 is 17.2% lower than in the second quarter of 2019. But it is to be expected that the fourth quarter of 2020, on an annual basis, will also be less than 10 %. So we have a big recovery problem, but nonetheless we have to keep a sense of perspective: we don’t end up with half the economy. “
Deep recession
Commentators stressed that despite the reality ‘misrepresentation’ of GDP by the 51% figure, it should not distract from the fact that the country is in a deep recession.
Even with a quarterly drop of 16.4%, the impact of the blockade on GDP in nominal terms has been severe, and the country will take a long time to recover from this position.
“An improvement in economic activity is expected due to the short-term consequences of Covid-19, as the government eases regulations and lockdown restrictions. However, the longer-term consequences will require much more time and effort to correct, ”said Ricardo Smith, investment strategist at Absa Global Investments & Solutions.
“The National Treasury forecasts economic growth of -7.3% in 2020, which would be the largest contraction in almost 90 years. Bloomberg’s median expectations are broadly in line, but a bit more pessimistic than Treasury’s. They see that the national economy contracts 8.0% in 2020, before recovering to register positive growth of 3.0% and 1.9% in 2021 and 2022 respectively.
Sanisha Packirisamy, an economist at Momentum Investments, said the level of economic activity is likely to return to pre-Covid-19 levels by 2023/24.
“GDP figures are misleading” is a mostly true headline, rather a headline for “largely peaceful protesters.” The content, however, is a description of technical details that does not provide information on the prospects for recovery, which is quite “challenging”. pic.twitter.com/qLLiWAjWPV
– Chris Hart (@chrishartZA) September 9, 2020
South Africa’s economic recovery, which many believed would be V-shaped, initially took off but then slowed. “After the blocking changes in the economy in recent months, this is to be expected. What we are seeing also suggests a more moderate recovery in the economy in the coming months, ”said Mike Schüssler, chief economist at economists.co.za.
We are likely to see a strong rebound in GDP in the third quarter of 2020, he said, however, the return of the economy to its previous levels will not be easily achieved, especially as companies now take on the additional pressure and costs that come with it. load. shedding.
Added to these are capacity and inflation problems, as well as the possible reappearance of red tape, the relaxation of repayment holidays, and other temporary measures that were introduced as financial crutches during this period. Then there are economic indicators, such as employment, which lag behind the economic recovery in some quarters, the economist noted.
A full recovery for the South African economy is likely still at least 18 months away, with some economists predicting that it could take up to four years to make a full recovery.
“Economists refer to what we are experiencing as the ‘swoosh recovery’ as in the Nike logo. The descent was fast and the first part of the recovery was also fast. But after these, the line is long. However, the recovery is likely to continue, but at a more steady and slower pace in the coming quarters. The closer the economy approaches full recovery, the slower the recovery process, ”said Schüssler.
“It will take some time for the economy to return to the levels it was before the close.”
Read: It will take years for South Africa’s economy to return to pre-Covid levels – Economists
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