Real GDP surprised the market consensus to the downside in the second quarter of 2020 as the effects of the pandemic and the associated lockdown measures ate into economic activity.
Growth contracted by 51% q/q saar and printed lower than the August 2020 Reuters Econometer median growth forecast of 44.5% p/p saar.
Meanwhile the first quarter numbers were upwardly revised from prior estimate of negative 2.0% q/q saar to negative 1.8% q/q saar, due to an upward revision in growth for the agricultural and trade sectors.
Highlights
- Real gross domestic product (GDP) declined by more than expected by 51% in quarter-on-quarter seasonally-adjusted and annualised (q/q saar) terms in the second quarter of 2020 and was 17.1% weaker on a year-on-year (y/y) basis. GDP surprised to the downside, given the August 2020 Reuters Econometer median growth expectation of negative 44.5% q/q saar and our own expectation of negative 50% q/q saar.
- GDP has declined for four consecutive quarters since the third quarter of 2019. However, with a resumption in economic activity, in line with an easing of the lockdown restrictions imposed by government, expectations are for a bounce in growth in the third quarter of the year. The median growth expectation of the August 2020 Reuters Econometer is pitched at 18.6% for the third quarter of the year and is anticipated to decline to 6.1% in the final quarter of the year.
- According to the production stack up of GDP growth, the largest detractors to activity included the manufacturing and trade sectors which shaved off 10.8% and 10.5%, respectively from the quarterly, annualised growth figure. The agricultural sector was the only GDP division which contributed positively to growth.
- Based on the expenditure stack up of GDP growth, household spending detracted the most from overall economic activity, due to a collapse in spending on durables and semi-durables. A steep fall in construction works activity and machinery and equipment contributed to a collapse in fixed investment, while businesses continued to run down inventory levels in response to fragile demand.
- SA’s leading indicator for May 2020 began to reflect the worsening economic climate that spread throughout the second quarter of the year. Despite an initial rebound in growth anticipated for the third quarter of the year, still soft sentiment indicators and electricity supply constraints are likely to curb the sustainability of the recovery.
- We expect growth to contract by 8.1% this year and are pencilling in a shallow recovery of 2% in 2021, as an increase in the number of business closures, persistently higher levels of unemployment and ongoing challenges to electricity supply detract from the expected upturn. In our view, the level of economic activity is only likely to return to pre-COVID-19 levels by 2023/2024.
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| Herman van Papendorp | Head | Investment Research & Asset Allocation | | Sanisha Packirisamy | Economist | |
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