2020q3
Regional eXplorer (ReX) update – 3rd quarter of 2020
IHS Markit is glad to announce the third quarter update for 2020 of Regional eXplorer (ReX) – the South African knowledge base of municipal level insight. Each quarter, data from a vast number of sources are incorporated into the ReX database to provide users with the most up-to-date statistics.
- Main data releases incorporated in this update
- South Africa's GDP contracts by 51% q/q annualised in Q2
- South Africa sheds 2.2 million jobs during Q2
- Announcement: Universal Health Coverage Index
Main data releases incorporated in the update
Amongst the latest data available from StatsSA (incl. QLFS and GDP), data from the SARB and many other data sources have been incorporated into the model. Unfortunately, the General Households Survey (GHS) was once again delayed. Topics that are heavily dependent on information from the GHS (such as household access to services) will only have 2019 data when StatsSA releases the data later this year.
Also, StatsSA has made an announcement regarding the detailed GDP that feeds into the Regional eXplorer:
Delay in the publication of the benchmarked and rebased gross domestic product (GDP) results
The COVID-19 pandemic will also affect the GDP benchmarking and rebasing that is currently in progress. After careful consideration, there will be a postponement of the publication of the benchmarked and rebased GDP results, previously scheduled for September 2020. Most of the activities required to be completed have been delayed by the lockdown. New dates will be communicated in due course as soon as consultations with the Statistics Council as well as key stakeholders are completed. The publication of the 2018 supply and use tables and independent annual GDP estimates will be similarly affected.
South Africa's GDP contracts by 51% q/q annualised in Q2
South Africa’s real GDP contracted by 16.1% quarter on quarter (q/q) on a seasonally adjusted annualised basis or 51% q/q on an annualised basis during the second quarter, latest official statistics compiled by Statistics South Africa (StatsSA) show. The steep decline lowered the year-on-year (y/y) growth rate to a contraction of 17.1%, on a seasonally adjusted annualised basis, during the second quarter. This left headline real, seasonally adjusted annualised GDP down by 8.7% y/y during the first half of 2020. South Africa’s y/y percentage fall in GDP during the second quarter ranked among the highest recorded in the world, but was still less severe than the GDP falls of 21.7% y/y in the United Kingdom, 22.1% y/y in Spain, and 23.9% y/y in India.
The agriculture, forestry, and fishing sector were the only sector making a positive contribution, of 0.3 percentage point, to the q/q (annualised) growth during the second quarter. All other sectors of the economy showed a sharp fall in output, with the steepest declines recorded in manufacturing (minus 10.8-percentage-point contribution); trade, catering, and accommodation(minus 10.5-percentage-point contribution); and transport, storage, and communication (minus 6.6-percentage-point contribution).
Demand-side GDP shows that household consumer spending took a severe hit during the second quarter, falling by 49.8% q/q (annualised). Fixed invested slowed by 59.9% q/q (annualised) and exports of goods and services were down 72.9% q/q (annualised). Imports of goods and services slowed by 54.2% q/q (annualised), while government consumption expenditure dropped by 0.9% q/q (annualised) over the period.
Outlook
The 51% q/q (annualised) fall in South Africa’s real seasonally adjusted GDP is well below the expectations of IHS Markit (38.8% q/q annualised) and overall market expectations (45% q/q annualised). The lower growth figure for the second quarter is likely to mean an overall contraction in GDP of 10.2% in 2020, down from IHS Markit’s initial forecast of a 9.8% contraction this year.
South Africa implemented harsh lockdown measures (Level 5) over the end-March to end-April period, followed by a Level 4 lockdown during May, to mitigate any strain on South Africa’s healthcare sector amid the coronavirus disease 2019 (COVID-19) pandemic. Confirmed COVID-19 cases in South Africa have come down from 13,944 per day on 24 July to the latest figure of 845 per day on 8 September, with initial indicators suggesting that the country reached its peak of recorded cases during July. The risk of a second wave of COVID-19 cases later in the year remains significant, nonetheless.
The downturn in economic activity during the second quarter could have been more severe without some of the mitigation measures introduced by the South African government. These included payments from the Unemployment Insurance Fund (UIF) under the Temporary Employee/Employer Relief Scheme (TERS) to those temporarily unemployed during the lockdown period, a basic income grant to the unemployed, and a loan scheme administered by the commercial banking sector, which provided a temporary liquidity injection for small and medium sized enterprises (SMEs). However, disbursements under the government’s COVID-19 loan scheme have been disappointing, the Banking Association of South Africa (BASA) reported, with only ZAR24 billion (USD1.4 billion) from ZAR200 billion available expected to be taken up SMEs by January 2021. Furthermore, the South African Reserve Bank has lowered its key policy rate, the repo rate, by 300 basis points since the beginning of 2020.
Our focus will now shift on to the expected rebound in the third quarter. South Africa moved to a Level 2 lockdown in mid-August, ultimately opening up most of the economy. Large gatherings remain prohibited, while the wearing of masks is mandatory. International flights to and from South Africa are still limited to repatriation and approved commercial cargo.
Higher levels of unemployment, cutbacks in salaries, permanent business closures, particularly in the entertainment and tourism sectors, combined with consistent load-shedding implemented by state power producer Eskom, are likely to suppress the rebound in third-quarter growth. A recent survey carried out by UK insurance and advisory firm Willis Towers Watson shows that one-in-five companies surveyed in South Africa will freeze all pay increases in 2020. Around 15% of companies surveyed had already laid off workers and 44% planned to do so in the future. Most companies – 73% – have frozen or cut recruitment targets for 2020. Strain on household disposable income is also apparent from Payprop’s latest rental index, which reported that more than a quarter of tenants renting in South Africa were in arrears in May (26.1%) and June (25.6%). The impact has been the most severe on the low- and high-income segment of the rental market. The TPN Rental Market Strength Index shows double-digit percentage vacancies in the rental market across South Africa.
Furthermore, near-term fixed investment is unlikely to kick-start economic activity. The Nedbank Capital Expenditure Project Listing reported an annualised total of 32 new announced projects (private and government) worth ZAR29.7 billion in the first half of 2020. This is the lowest number of listed projects since the Nedbank survey started in 1993, while the value of the projects is the smallest since 2001. Nonetheless, the slump in large-scale capital projects could be mitigated in part by a stronger housing market as more households that qualify make use of the lower interest-rate environment to acquire fixed assets.
Exports of goods could benefit from the projected rebound in global activity and stronger global commodity prices during the second half of 2020. However, tourism proceeds will remain tepid and continue to be a drag on export earnings, while the opening up of the economy could push imports higher over the period.
The risk to South Africa’s growth prospects remains skewed to the downside. Only a strong collaboration between the South African government and the private sector under the proposed Economic Reconstruction and Recovery Plan, with a focus on the proposed infrastructure-driven recovery could push growth beyond IHS Markit’s current expectations. In the near term, higher unemployment, ongoing electricity deficits, and tapering down of consumer and business support initiatives due to limited fiscal space will be a significant drag on economic activity.
South Africa sheds 2.2 million jobs during Q2
The number of employed persons in South Africa fell by 2.2 million during the second quarter of 2020 compared with the first quarter, latest statistics from the South Africa Statistical Service (StatsSA) show. This pushed the expanded unemployment rate up to 42% in the second quarter, from 39.7% in the previous quarter and 38.5% during the second quarter a year earlier.
All sectors of the South African economy shed jobs during the second quarter of 2020, with the biggest contractions recorded in the utilities sector, down 25.4% year on year (y/y); construction, down 21.8% y/y; and manufacturing, down 18.6% y/y.
Overall formal sector employment fell by 13.6% quarter on quarter (q/q) and 13.3% y/y during the second quarter.
Outlook
The sharp fall in formal sector employment and, consequently, the sharp rise in unemployment during the second quarter come as no surprise. Stringent coronavirus disease 2019 (COVID-19)-pandemic-related lockdown measures adopted during the second quarter resulted in temporary business closures for almost all sectors of the economy. Limiting mobility across domestic and international borders for individuals added to the precarious job market over the period.
As COVID-19-pandemic-related lockdown measures started to ease during June, achieving Level 1 in mid-September, IHS Markit is of the view that employment in the South African market could show some recovery during the second half of 2020. Some permanent job losses are inevitable, nonetheless, particularly in South Africa’s services industries such as entertainment, hospitality, tourism, financial services, retail and construction. Our estimates suggest that around 1 million people are unlikely to return to their previous formal sector jobs during the second half of 2020.
Weak employment, slow gains in disposable income, sluggish non-mortgage credit extension, and heightened consumer uncertainty are expected to leave the bounce-back in GDP growth during the third quarter at 34% q/q (annualised), smaller in magnitude compared with the 51% q/q (annualised) contraction in the second quarter. IHS Markit maintains the forecast of a 9.3% contraction in South Africa’s real GDP during 2020. The official unemployment rate (not expanded) is expected to end 2020 at 32.5%, from 28.7% in 2019.
Announcement: Universal Health Coverage Index
As mentioned during the quarter and at the most recent webinar, we aimed to have the Health Module done for this release that would have included the Universal Health Coverage Index. After some quality control checks we discovered that the data still required some development and will be postponed to the next release later this year.
Enjoy the update!
The IHS Markit ReX team