SA braces for a deepening recession


Economic growth and current account data for the first quarter will be the main focus this week. Though too backward-looking to reveal the effect of the pandemic, the data is likely to show that the recession was entrenched before the virus struck.

First-quarter GDP figures will be released by Stats SA on Tuesday.

First National Bank (FNB) predicts the figures will show that SA remained in recession, with a real GDP growth contraction of 2.6% quarter on quarter on a seasonally adjusted and annualised basis.

Citibank is more bearish, forecasting a 3.7% quarter-on-quarter contraction, after quarterly contractions of 1.4% and 0.8% in the last two quarters of 2019.

The economy got off to a weak start in 2020 with frequent load-shedding. Even so, Citibank economist Gina Schoeman points out that the first-quarter data is just “the calm before the Covid-19 storm that hit from April” and that GDP is likely to nosedive in the second quarter.

BNP Paribas economist Jeff Schultz expects first-quarter GDP to have contracted by 3.8% quarter on quarter, mainly due to negative performances by mining, manufacturing, utilities and construction linked to electricity supply disruptions.

That the unemployment rate breached 30% in the first quarter suggests that the wholesale and retail trade and financial services sectors also posted disappointing results.

SA’s growth rate has slowed in almost every year since 2013 and for the past five years has averaged just 0.7%. The rough consensus is that the economy will contract 7%-10% this year due to the affect of the coronavirus.

Private sector credit extension data will also be released on Tuesday. Household credit appetite has been moderating since December 2019 and, in April, slowed to 7.4% year on year from 7.7% year on year in March.

FNB chief economist Mamello Matikinca-Ngwenya expects mortgage advances, which make up almost 60% of total household credit, to retreat even further in May due to SA’s stringent lockdown and disruptions at the deeds office.

Corporate credit advances should remain elevated, however, given the need for firms to obtain working capital support during the lockdown.

The Absa manufacturing purchasing managers’ index (PMI) and new-vehicle sales data, both for June, will be released on Wednesday.

In April the business activity subindex of the PMI plunged to a record low of 5.1 but recovered to 43.2 in May when the overall index climbed back to just above 50.

BNP Paribas expects the overall index to dip to 47 index points in June as supplier delivery times are normalising with the reopening of the economy. However, the business activity and new sales orders sub-indices is likely to remain “very weak”.

Investec expects that new-vehicle sales continued to contract in June, albeit at the slower rate of 48% year on year compared with the 68% year-on-year contraction recorded in May.

“The reopening of showrooms and, to a certain extent, pent-up demand is likely to have supported an increase in the number of vehicles sold,” says Investec economist Kamilla Kaplan.

Economists expect the first-quarter current account deficit numbers, which will be released on Thursday, to have narrowed slightly from the 1.3% deficit recorded in the last quarter of 2019 on improved trade surpluses.

However, this is mainly because SA’s imports have declined in line with the contraction in economic activity. A modest narrowing in the income account owing to softer dividend payments and bond coupon payments abroad should also help.

Schoeman expects the current account deficit to continue narrowing for the rest of the year as imports collapse further.

On the up side, she points out that this should leave the current account more or less in balance for 2020, which would provide balance of payments relief while the fiscal deficit remains under extreme pressure.


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