2020q4
Regional eXplorer (ReX) update – 4th quarter of 2020
IHS Markit is glad to announce the last quarterly 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 rebounds 13.5% q/q in Q3
- South Africa's unemployment rate increases to 30% in Q3
- Manufacturing output grows 2.6% m/m in October but not yeat back to pre-COVID-19 levels
Main data releases incorporated in the update
Amongst the latest data available from StatsSA (incl. QLFS, QES 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 and without the required unit data made available we are not able to incorporate this release into ReX.
South Africa's GDP rebounds 13.5% q/q in Q3
South Africa’s GDP bounced back by 13.5% quarter on quarter (q/q) during the third quarter. Economic growth is unlikely to experience similar strong growth during the fourth quarter. South Africa’s real GDP bounced back during the third quarter from a contraction of 16.6% q/q in the previous quarter. The sharp rebound in economic activity during the third quarter was not enough to bring GDP back to the pre-coronavirus disease 2019 (COVID-19) virus level. Instead, the country’s headline GDP fell by
6.1% y/y during the third quarter, leaving overall GDP down by 7.9% year on year (y/y) during the first nine months of 2020.
All sectors in the South African economy recovered from the low base in the second quarter, when harsh COVID-19 virus-related lockdown measures were implemented alongside temporary business closures. Sectors that showed the strongest gains include mining and quarrying (contributing 11.8% percentage points to the third-quarter growth), manufacturing production (16.2 percentage points), and the wholesale and retail trade sectors (14.1 percentage points). A strong rebound in household consumer spending (contributing 43.8 percentage points to the third-quarter GDP growth), followed by exports of goods and services (38.2 percentage points) positively affected demand-side GDP growth during the third quarter. A strong inventory drawdown was further mitigated by a lacklustre return in import demand for goods and services over the period. Fixed capital formation contributed only a meagre 5.2 percentage points to headline GDP growth during the third quarter.
Outlook
The rebound in economic activity during the third quarter exceeded IHS Markit’s initial estimates. We have been of the view that fixed capital formation is unlikely to recover strongly in the short term while growth will be propelled by household spending and exports of goods over the period. The slow return in import demand during the third quarter is likely to reflect ongoing global supply-chain disruptions and ultimately leave overall GDP higher than initially expected. Domestic demand and exports have been supported primarily through a drawdown in inventories over the period. IHS Markit does not assume fourth-quarter growth to maintain the sharp upward trajectory. Instead, we find the likelihood of a “bounce and fade” growth scenario more likely, with q/q growth remaining positive during the fourth quarter but significantly lower than the 13.5% q/q growth recorded in the third quarter.
Weak “Black Friday” retail sales – which lasted for the whole month of November –could be the first indication of the impact of higher unemployment levels, weak consumer confidence over the post-COVID-19 virus period, pent-up savings, and social distancing on the overall economy. Ongoing global supply-chain bottlenecks could have also been contributing to this trend, leaving the likelihood of an inventory-led GDP recovery relatively modest, in IHS Markit’s view. The sharp rise in exports of goods and services combined with the modest gain in import demand bodes well for South Africa’s current account during the third quarter. Exports could nonetheless fade during the fourth quarter, as lockdown measures are reimposed in major trading partner such as the European Union and the United Kingdom and growth in these economies moderates.
Overall, we expect South Africa’s GDP to contract by 7.3% during 2020 from a 9.3% contraction previously expected. Risks to the outlook remain high, with localised lockdown measures on the back of a slow uptick in COVID-19 cases since the beginning of December posing the most significant threat. For 2022, we assume GDP growth of around 3.0%. Only the successful implementation of the government’s post-COVID-19 virus economic recovery programme with a strong focus on infrastructure expansion and reindustrialisation could push growth above current expectations. IHS Markit will be monitoring programme implementation in the coming months while public-sector wage negotiations will also take centrefold. Limited public-sector wage increases form the cornerstone of stabilising public-sector debt levels in the medium term. Corruption and the expropriation of land without compensation policies are expected to affect investor sentiment.
South Africa's unemployment rate increases to 30.8% in Q3
The South African economy shed jobs in the trade, manufacturing, community and social services, and construction sectors in the third quarter compared with the same period last year. South Africa’s unemployment rate increased to 30.8% in the third quarter of 2020, from 29.1% for the same period a year before. The Statistics South Africa (StatsSA) service reported that the number of employed persons increased by 543,000 during the third quarter; however, the number of unemployed persons shot up by 2.2 million to 6.5 million over the period.
Employment during the third quarter recovered for all sectors in the economy, compared with the previous quarter, except in the transport and utilities sectors. Sectors that showed the biggest gains in employment were finance (200,000), community and social services (137,000), and private households (116,000). The biggest job losses were recorded in the trade (400,000), manufacturing (300,000), community and social services (298,000), and construction sectors (259,000), compared with a year earlier.
Outlook
The third-quarter employment numbers lift the curtain on the impact of the coronavirus disease 2019 (COVID-19) pandemic on South Africa’s labour market. Higher numbers of unemployment were expected during the second quarter as South Africa lived through the country’s level 5 extreme lockdown measures, which coincided with business closures for almost all sectors in the economy. By the third quarter, the South African economy was almost fully opened, but the employment numbers show that not all were able to return to their previous work.
Up to now, the South African government has provided income support for those unemployed and affected by the COVID-19 lockdown measures and recently extended the Unemployment Insurance Fund’s Temporary Employer/Employee Relief Scheme (Ters), as well as the special relief of distress grant, to January. The full knock-on effect of the rising unemployment level in the economy will be more visible as we move into 2021 and government support is withdrawn. This, combined with soft salary adjustments and limited fiscal space to sustain the wider safety net to the most vulnerable in society, will increase poverty and inequality in the South African economy further over the short term.
The need to successfully implement the South African government’s post-lockdown economic reform programme, with a focus on infrastructure development, has become more pressing. Significant bottlenecks remain, of which insufficient electricity supply and cement and steel shortages are currently the most prominent.
Manufacturing output grows 2.6% m/m in October but not yeat back to pre-COVID-19 levels
South Africa’s manufacturing production continues to recover but remains below pre-coronavirus disease 2019 (COVID-19) pandemic levels. The South African manufacturing sector’s output edged up by 2.6% month on month (m/m) during October. However, overall manufacturing production has not yet recovered to pre-COVID-19 levels, with manufacturing production contracting by 3.4% year on year (y/y) during the month. Production losses compared with a year earlier were recorded by manufacturing sub-sectors including petroleum, chemical products, rubber and plastic (down 6.8% y/y). Other sub-sectors recording y/y output losses included basic iron and steel, non-ferrous metal products, metal products and machinery (down 5.0%); motor vehicles, parts and accessories and other transport equipment (down 6.8%); and wood products, paper and publishing and printing (down 3.4%). Output gains compared with a year earlier were recorded in the food and beverages (up 0.5% y/y) and glass and non-metallic metals (up 4.2% y/y) sub-sectors. Overall manufacturing production fell by 12.8% during the first 10 months of 2020, the Statistics South Africa (StatsSA) statistical service reported.
South Africa’s GDP bounced back by 13.5% quarter on quarter (q/q) during the third quarter. The sharp rebound in economic activity during the third quarter was not enough to bring GDP back to the pre-COVID-19 virus outbreak level. Instead, the country’s headline GDP fell by 6.1% y/y during the third quarter, leaving overall GDP down by 7.9% y/y during the first nine months of 2020.
All sectors of the South African economy recovered from the low base in the second quarter, when harsh COVID-19 virus-related lockdown measures were implemented alongside temporary business closures. Sectors that showed the strongest gains on a quarter-on-quarter annualised basis in the third quarter included mining and quarrying (contributing 11.8 percentage points to the third-quarter growth), manufacturing (16.2 percentage points), and wholesale and retail trade (14.1 percentage points). Manufacturing production continues to trend up but has lost some momentum since the third quarter of 2020. However, encouraging is that the latest month-on-month growth rate remains well above the average monthly contractions of 0.6% recorded in 2019. Electricity disruptions and a slowdown in economic activity in major trading partners in Europe during the fourth quarter pose a risk to South Africa’s near-term manufacturing outlook. The risk of a second wave of the COVID-19 virus outbreak and possible regional lockdowns in the South African economy is elevated. However, IHS Markit does not expect a full lockdown of the economy in 2021.
Enjoy the update!
The IHS Markit ReX team