GDP expected to shrink by 7% in 2020 fourth quarter

Economists generally expect that the economy would have continued its recovery in the last quarter of 2020 – with forecasts mostly around the 5% level – but that the Covid-19 pandemic would see gross domestic product (GDP) shrink by around 7%. Statistics SA will announce the GDP figures for the final quarter of 2020 and the year today.

Hugo Pienaar, chief economist at the Bureau for Economic Research, says the team at the University of Stellenbosch expects further economic recovery in the fourth quarter of 2020, but that the figure will not be as strong as the growth in the third quarter compared to the second (when the economy recorded annualised “growth” of more than 66% after the decline of 51% in the second quarter).

The figure to watch

The important figure to watch is the annual growth, which Pienaar says will show the economy shrank by around 7% compared to 2019, under the assumption that the economy expanded by 5% to 5.5% in the last quarter compared to the preceding three months.

“Actually, it doesn’t really matter if growth in the last quarter was 3% or 6%, the figure for the full year will be around minus 7%,” says Pienaar.

“It will take the SA economy several years to recover to the levels of 2019, based on general forecasts of economic growth of 3% this year and 2.5% next year.”

The big question

Moneyweb dared to ask what is necessary to stimulate economic growth, fully aware that there is a long list of economic ills.

“I can mention a lot of stuff, but two things stand out,” says Pienaar.

“Number one is that we get enough vaccines and good cooperation between government and the private sector to roll-out [the vaccination programme] efficiently.

“The second, and equally important requirement, is that we solve SA’s energy situation,” says Pienaar.

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“There is a lot to do. Even if Eskom gets its house in order, we will still have a shortage. We need regulatory changes to enable private generation and deliver energy into the national grid. It is of critical importance over the next 12 to 18 months.”

FNB’s economists sing from the same music score.

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi and Thanda Sithole say: “Some green shoots, but still a long road to full recovery.”

Resilience and capacity

They conclude in a recent research note that the release of GDP data will show how resilient various sectors were while lockdown restrictions were in force.

More importantly, they say, the data will give an estimation of how much capacity the economy lost in 2020.

“Indeed, the considerable reduction of interest rates and other monetary policy measures by the Reserve Bank provided much-needed support … through, among other things, lower debt-service costs and lower total costs of new debt.

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“The external economy also remained supportive, particularly in the third quarter of 2020, when exports contributed a significant 38.3 percentage points to real GDP growth.

“Recent data shows that this trend might have continued into the fourth quarter, albeit at a slower pace.

“We pencil in quarterly annualised growth of around 6%, which effectively implies that real GDP likely contracted by about 7% in 2020,” they say.

This article first appeared on Moneyweb and was republished with permission.

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