Staff Reporter
Recovery prospects for South Africa’s economy could be dashed by the recent resumption of load shedding, the ongoing battle to contain the spread of COVID-19 and low government spending due to budget restrictions, a leading financial institution.
Nedbank’s economic unit said this in a detailed analysis of the country’s economy after Statistics South Africa (Stats SA) announced Tuesday that the economy shrank by 51 percent in the second quarter of this year.
“The growth outlook for the remainder of this year remains relatively subdued, although a recovery is expected,” said the Nedbank economic unit.
“The resumption of load shedding, the public sector’s dismal fiscal position and new challenges posed by COVID-19 health protocols will undermine the pace of recovery,” it added.
Nedbank said from the supply-side, most sectors are expected to rebound in the third quarter.
“Mining and manufacturing are expected to be supported by improved global demand, particularly from Asia, but the upside will be contained by protracted power outages and the volatile rand exchange rate,” said the economic unit.
“On the expenditure side, the recovery will still be slow.
“The outlook for private sector investment spending remains bleak given ample spare capacity, no progress in structural reforms, unreliable power supply, unresolved policy issues, high long-term borrowing rates and exceptionally low business confidence.”
Nedbank said given that some companies have announced they will be restructuring their operations by cutting operating costs and re-evaluating capital projects, this will inevitably result in retrenchments.
Statistician General Risenga Maluleke described the contraction of the economy as a severe punch in the gut.
“Perhaps the second quarter of 2020 will become known as the pandemic quarter,” said Maluleke in his report covering the period of April to June when the country operated under widespread lockdown restrictions in response to COVID-19.
Gross domestic product fell by just over 16 percent between the first and the second quarter of 2020, giving an annualised growth rate of minus‑51 percent.
Nearly all industries experienced a massive drop in output in the second quarter and construction was the biggest loser with a contraction of 76.6 percent.
Manufacturing output, according to Stats SA, shrank by 74.9 percent as a result of work stoppages and lower demand for steel.
It said the ban on alcohol sales had a heavy impact on the food and beverage division of manufacturing.
Mining was down 73.1 percent as most operations closed during that period of the national lockdown.
Agriculture is the only sector that grew after registering a positive 15.1 percent.