SA Facing Slow Growth, Record Unemployment With Few COVID-19 Vaccines In Sight

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The South African Reserve Bank governor, Lesetja Kganyago. PHOTO: Getty Images

THEBE MABANGA|

THE South African economy suffered its worst annual contraction since 1920, and now faces record unemployment, while foreign investors dumped South African shares, bonds, and cash.

The economy limited prospects for recovery due to impediments such as load-shedding and slow rollout of infrastructure and possibly the sow rollout of the COVID-19 vaccine.

This is the picture painted by the South African Reserve Bank (SARB) in its Quarterly Bulletin for March this year, and released on Tuesday.

The South African economy plunged by almost 60% in the second quarter of last year because of the National Lockdown to slow down the spread of Covid 19.  

The economy recovered by a revised 67.3% in the third quarter and 6,3% in the fourth quarter of last year.

The bank reiterates that the economy contracted by 7% in 2020, which is lower than feared, with some estimates anticipating a contraction of more than 11%.

“This was the second-largest annual contraction since 1920, when real GDP fell by 11.9%, and was also about five times larger than the contraction of 1.5% that followed the global financial crisis in 2009,” the Bank said.

“The slowdown in output growth in the fourth quarter of 2020 was broad-based as growth decelerated sharply in the primary, secondary, and tertiary sectors.”

Agriculture is one of two sectors to experience growth output due to a bumper maize and citrus fruit crop.

The demand for cistus fruit was driven by increased demand, including foreign demand, as citrus is crucial to the prevention and treatment of COVID-19.

The manufacturing sector is also showing signs of returning to growth as demand for manufacturing input led to an increase in imports towards the end of last year.

Economic activity measured by spending also declined. Gross Domestic Expenditure fell by 8.9% last year, after a slight increase of 0.7% in 2019.

Overall spending by households declined by 5.4% for the year, with the biggest fall in spending in semi-durable goods, at 18.3%.

Spending on durable goods fell by 8.4% while spending on non-durable goods fell by 3.9% and services fell by 3.4%.

Employment prospects remain bleak. South Africa’s official unemployment stood at 32.5% in the fourth quarter of last year, from 30.8% in the third quarter.

During the second quarter, 5 million people were locked out of the labour force 2.8 million lost jobs and the rest were unable to search for employment due to the lockdown.

“The labour force increased further as job searching picked up following the further easing of the COVID-19-related lockdown restrictions,” the bank says of the fourth quarter performance

“Unfortunately, the quarterly increase in employment was surpassed by the increase in unemployment, which brought the number of officially unemployed persons to 7.2 million – the highest number on record.”

Load-shedding continues to cast a shadow on the economy.

“Electricity costs, the recurrence of load-shedding, illegal connections, infrastructure theft and vandalism remain notable structural impediments to future output growth,” the quarterly bulletin notes.

The bank also noted that Real Gross Fixed Capital Formation – which measures the accumulation of buildings equipment and other infrastructure by government SOEs and the private sector – contracted sharply in 2020, a third successive annual contraction.

The contraction is caused by significant declines in real capital spending by private business enterprises and state owned companies.

“Consequently, the ratio of nominal gross fixed capital formation to nominal GDP declined from 17.9% in 2019 to 15.8% in 2020 – the lowest since 2002,” the bank said.

The Reserve Bank also noted that COVID-hit demand for credit.

“In the household sector, high unemployment and weak job prospects, together with low consumer confidence, contributed to the slowdown in credit demand,” the bank said, while for the private sector, fall in demand was due to COVID-19 restrictions and an already challenging economic climate.

The quarter-to-quarter, seasonally adjusted and annualised total loans and advances to the domestic private sector contracted by 1.9% in the third quarter of 2020 and increased 1.1% in the fourth quarter.

The ­­­­bank then makes a singular passing reference, which has distributed R 18 billion out of R 200 billion, or less than 10%, noting: “The uptake of the government loan guarantee scheme by small and/or medium-sized businesses affected by the COVID-19 pandemic remained less than anticipated.”

The bank does not offer reasons for this trend.

Global economic recovery is now dependent on the successful rollout of the COVID-19 vaccine, starting in advanced countries like the United Sates and Europe.

But the rollout effort in countries like Germany has been characterised and “glacial” due to how slow it is.

South Africa’s own rollout remains relatively slow, with about 250 000 vaccinnes administered to date.

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