South Africa’s gross domestic product fell an annualized 51 percent in the three months to the end of June from the previous quarter, data from the national statistics agency showed Tuesday, reflecting the impact of the government’s tough lockdown to contain the coronavirus. The economy contracted 17.1 percent year-on-year while the quarter-on-quarter decline was 16.4 percent on a non-annualized basis.
The contraction was more than anticipated by experts and is the steepest since at least 1990, driven largely by steep declines in the construction, manufacturing, and mining sectors, where activity shrank by up to 70 percent. It “dwarfs the annualized slowdown of 6.1 percent recorded in the first quarter of 2009 during the global financial crisis,” the state statisticians said.
More so, the unprecedented plunge in Q2 2020 GDP is the fourth in a row, meaning Africa’s most industrialized economy is on its longest recession in 28 years. It comes after one of the world’s strictest lockdown was imposed on March 27 to control the spread of the virus.
Movement restrictions were enforced using armed forces with people allowed to leave their homes only to buy essential items and food, collect welfare grants, and seek medical care, according to multiple reports. Only essential services providers were exempted from the strict measures.
That ceased most economic activity and pushed the economy into a deep recession. “The punch in the gut was severe,” Statistics South Africa said in a statement. A phased re-opening of the economy commenced from May 1 but several companies have closed shop permanently or fired workers during the lockdown.
The tourism industry – one of South Africa’s leading contributors to GDP – was also severely affected. During the three months, borders were shut, domestic travel was put on hold, restaurants were closed and the sale of alcohol was prohibited. “Spending on restaurants and hotels ground to an almost complete halt, plunging by 99.9 percent,” StatsSA said.
The only bright spot in the period under review was the agriculture sector, which appeared unaffected by the pandemic and its ensuing economic fallout. It was the only industry that expanded as South Africa saw a boost in maize exports while enjoying an increase in international demand for citrus fruits and pecan nuts.
South Africa was already in its second recession in two years when the virus hit – it had shrunk by two percent during the first quarter of the year. “The economy was already on the back-foot when the coronavirus struck,” said Boingotlo Gasealahwe, Africa economist at Bloomberg. “The second-quarter GDP data confirmed the economy was badly hit by the measures taken to curb the spread of the coronavirus.”
While some recovery is currently underway, it is being pulled back by “long-standing structural constraints”, most of which have intensified as a result of the pandemic, Gasealahwe noted. One of such challenges is the longstanding and hesitant power cuts – national power utility Eskom last week resumed power rations as it grapples with aging coal-powered plants.
As the lockdown restrictions have gradually been eased, the economy is expected to start picking up in the third quarter, Sanisha Packirisamy, an economist at Momentum Investments, said in a note but warns that “electricity supply constraints are likely to curb the sustainability of the recovery.”
Finance Minister Tito Mboweni in June said the economy would contract by 7.2 percent in 2020 in the wake of the coronavirus pandemic, which would be the deepest slump in 90 years. It will take around five years for South Africa’s economic activity to return to pre-pandemic levels, according to forecasts from the United Nations.
South Africa leads Africa in the number of confirmed coronavirus cases, accounting for more than half of the continent’s infections. It also ranks among the top seven countries in the world in terms of confirmed infections with over 640,000 cases and more than 15,000 deaths.