CLAIRE BISSEKER: The silver lining from SA’s -7% GDP gloom
Despite a surprisingly strong resurgence in economic activity in the second half of last year, the SA economy still declined by 7% year on year in 2020. That, in fact, is its worst performance since record-keeping began.
This week’s GDP number may be in line with the prevailing consensus, but it still makes for grim reading — even in the context of the worst pandemic in more than 100 years.
The worst affected sector last year was the construction industry, which shrank by 20.3% y/y, followed by transport and communication (–14.8%), manufacturing (–11.6%), and catering, trade and accommodation (–9.1%).
These contractions are particularly stark given that, in the end, most of these sectors rallied to boast double-digit growth rates in the final quarter.
In fact, only two sectors contributed positively to growth in 2020 as a whole: agriculture, which was exempt from lockdowns and enjoyed favourable weather to grow by 13% y/y, and general government, which was up by 0.7% y/y, presumably on pandemic-related spending.
Not that this is much reason to rejoice: the agricultural sector accounts for just 1% of the economy, while the government is now so large, at 19%, that it’s almost the same size as SA’s entire financial and business services sector.
On the expenditure side, the two biggest drags on growth in 2020 were fixed investment, which fell by a horrific 17.5% y/y, and household expenditure, which fell by 5.4% y/y. Each shaved 3.4 percentage points off 2020’s overall growth rate.
Some of the devastation was expected. Household spending on restaurants and hotels, for example, plunged by almost 42%, while s pending on clothing and footwear dropped by 21%.
Also, spending on alcoholic beverages and tobacco fell by nearly 17%. In other words, the alcohol and tobacco bans reduced SA’s 2020 growth rate by almost a full percentage point.
But even so, despite the rise in unemployment and a devastating Covid-19 second wave, the economy showed resilience in the second half.
Spending on restaurants and hotels, for instance, exploded at an annualised rate of 218% in the final quarter as the lockdown eased. Encouragingly, this suggests there is plenty of pent-up demand.
The rally in commodity prices undoubtedly also helped, and it’s possible that higher-income earners were insulated by the stock market rally. It could also be that SA’s modest stimulus provided more support than it’s given credit for.
But the question now is whether our recovery momentum can keep building in 2021.
Activity fell back earlier this year on tighter lockdown restrictions and a resurgence in load-shedding.
Still, economists say it’s going to be almost impossible for the economy to grow by less than 2.5% this year, given the automatic boost from technical base effects and the impact of firms restocking inventories.
All things considered, it’s SA’s vaccine rollout and load-shedding that will be decisive for our economic recovery, along with the direction of global growth.
The key will be not just the prevalence and effectiveness of vaccines, but whether the state can avoid responding to further waves of Covid-19 with harsh lockdown rules.
If we can stop scoring more lockdown own goals and keep load-shedding to a minimum, the economy should bounce back nicely this year, even if the pace of economic reform remains desultory.
However, if we truly want faster growth, we have no option but to accelerate the pace of economic reform. With so much lost ground to recover, the country dare not waste (another) single day.
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