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South Africa’s gross domestic product (GDP) fell by a whopping 51% in the second quarter of the year, reflecting the immense damage caused to the economy by the Covid-19 lockdown.
This pushes South Africa into an even deeper recession, after GDP growth for 1Q20 reached -2%, after declines of 0.6% in 3Q19 and 1.4% in 4Q19.
It was the fourth consecutive decline in quarterly GDP since the second quarter of 2019, Stats SA said.
Manufacturing contracted 74.9% in the second quarter. All ten manufacturing divisions reported negative growth rates in the second quarter.
The divisions that contributed the most to the decrease were iron and basic steel, non-ferrous metal products, metal products and machinery; food and drinks; and oil, chemicals, rubber and plastic products, said Stats SA.
The commerce, catering and accommodation industry decreased 67.6%. A decrease in economic activity was reported in wholesale trade, retail trade, auto trade, catering and accommodation.
The industry was hit hard as only select essentials were allowed to be sold during the early stages of the shutdown. Furthermore, food and lodging establishments were severely restricted during the confinement.
The transportation, storage and communications industry decreased 67.9%. Decreases were reported in ground transportation, air transportation, and transportation support services.
Mining and quarrying decreased 73.1% and contributed -6.0 percentage points to GDP growth. Due to global lockdown restrictions, demand for mineral products fell, contributing to lower production of platinum group metals (PGM), gold, iron ore, chromium ore and coal.
Financial, real estate and business services decreased 28.9% and contributed -5.4 percentage points to GDP growth. Decreases were reported for financial intermediation, insurance and pension funds, auxiliary activities and other business services.
The agriculture, forestry and fisheries industry was the only positive contributor to GDP growth, with an increase of 15.1% and a contribution of 0.3 percentage points to GDP growth. The increase was mainly due to increased production of extensive crops and horticultural and animal products.
Real GDP not adjusted to market prices for the first six months of 2020 decreased by 8.7% compared to the first six months of 2019.
Low performance
Data from Stats SA marginally beat estimates from economists over the past week, who projected that the country’s GDP would be within the range of -40% to -50%. The Reserve Bank of South Africa estimates were set at -40.1%.
South Africa’s economy was decimated in the second quarter of the year by the almost complete shutdowns of businesses and production under high-level lockdowns, which were imposed to slow the spread of the Covid-19 coronavirus.
Although the lockdown gradually eased during the quarter, moving to Level 4 in May and then Level 3 in June, the looser restrictions were not enough to boost economic activity during the period.
The lockdown aside, South Africa’s economy was not in a very healthy position to begin with, already in recession, with production and growth severely hampered by recurring power outages, slow economic reforms, and widespread government corruption.
Economists have raised concerns that the country’s fiscal situation, allegations of corruption, and weak growth prospects will continue to weigh negatively on investor sentiment, reduce the attractiveness of the country’s assets, and potentially undermine foreign capital inflows.
Growth is expected to pick up in the third quarter; however, South African consumer confidence remains at a nearly three-decade low.
Read: What to Expect from South Africa’s Second Quarter GDP Data
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