Worst GDP ever, but there is hope

The latest GDP decrease is the worst ever since 1920, when the GDP decrease was 11.9%.

Dr Elna Moolman, head of SA macroeconomic, fixed income and currency research at Standard Bank South Africa, said the GDP decrease was indeed horrible and the whole year would probably see a decrease of 8%.

“I am glad that it was not worse than we expected and that it is only a reflection of the lockdown restrictions.”

Electricity use is a good indicator of economic recovery and it has recovered very well, with usage last week back to where it was in Q1 and a year ago, she said.

“We feared that recovery will take much longer and it is good to see a reasonable recovery already. However, we are worried about Q3 because although the figures will look better by then, we will see the impact of job losses.”

Moolman does not anticipate any tax hike and repo rate cut, but believes that the repo rate will be kept low if inflation remains low.

Prof. Jannie Rossouw, interim head of the Wits Business School, says South Africa is in a very deep recession now, excluding agriculture and government.

“Government will have to rethink its level of expenditure and take measures such as only buying locally produced cars for government use to stimulate economic growth.

“Government can also avoid bureaucratic oversupply by for instance requiring cars to be licensed only every five years. It has to work cheaper and more efficient, such as having less offices for the education department and more teaching in the class with less administration work.”

He also believes that government should give the private sector a chance to stimulate the economy.

Economist Mike Schüssler says the economy is in deep trouble and although it was expected, the decrease was still very sharp. He also says that the state cannot grow the economy without the private sector.

“The decline in the private sector economy was 21.4%, but if we want to get back to where we were, we would have to grow by 27.9%.

“It will take 18 years for the private sector to reach the growth of the decade from Q2 in 2009 and 2019, but by that time our population will have grown by 30%. Our population is growing quicker than the economy.”

According to Schüssler, the good news is that there will be a bounce-back that has already started with the July/August figures looking a lot stronger.

“However, government will have to cut back, because we simply do not have the tax income to keep on going as we were.”

He agrees with Moolman that the staff at the National Treasury are having sleepless nights.

“We are not just talking about a 7% decrease as was anticipated before the pandemic.”

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