First, the good news for the South African economy! The third quarter of 2020 – the current quarter, which ends at midnight on 30 September – is experiencing off-the-charts economic growth. According to the latest Reuters consensus poll of economists, the economy is going to expand 18.6% this quarter. That is the kind of growth that investors notice and would typically create tons of jobs. 

Alas, investors will barely take note and other indicators, such as the Absa Purchasing Managers Index (PMI), suggest jobs are still being shed. This is because this double-digit growth spurt is a rebound from a monstrous crater. In the second quarter (Q2) the Reuters poll forecasts that the GDP data – to be released on Tuesday by Stats SA – will show a contraction on an annualised basis of 44.5%. That would be the economy’s worst performance on record. 

The range is 20% to 53%, which suggests that a lot of thumbs are being sucked here. But there is no doubt that a shrinkage of epic proportions is on the cards because of the hard lockdown measures to contain the Covid-19 pandemic. For all of 2020, the Reuters poll sees a contraction of 8% and many analysts are talking double digits. 

“We had one of the strictest lockdowns in the world, so we would expect a very big Q2 contraction. For Q3, some indicators are quite strong at this point in time, including electricity consumption, hence the load shedding, and agriculture and mining, and some retail and home sales,” Nazmeera Moola, Head of SA Investments at Ninety One, told Business Maverick.

Ultimately, the big issue will be the overall size of the 2020 contraction, which will not likely be quantified before March next year, given Stats SA’s publishing schedule for such data. That number at this point is also a thumbsuck. 

Among the many factors hobbling the recovery from the Q2 crash is Eskom. The intensity and frequency of load shedding between now and New Year’s Eve will in part determine the size of the GDP decline. Confidence and consumer spending are also difficult to forecast at the moment, given the many uncertainties around the pandemic. A plague is still among us. And even amid this so-called recovery – coming on top of a 30% unemployment rate in Q1 – there is evidence of returning jobs, but not overall job creation.

Indeed, the economy may shed more jobs yet, throwing fuel on the highly combustible social kindling of unemployment, inequality and poverty that still disfigures South Africa’s body politic. 

“There were a lot of service industry jobs, such as waiters and things like that, that were shed during lockdown but they are slowly coming back on stream. But a lot of larger companies are looking at their cost bases and workforce. While they may not move immediately, this will affect employment negatively over the next year in South Africa,” said Moola. 

There is also the burning issue of South Africa’s debt-to-GDP ratio, which is seen exceeding 80%. A bigger-than-expected contraction and a slower-than-expected recovery would blow those ratios out of the water. But that is the ratio that determines the risk premium investors are willing to take to include South African debt in their portfolios. 

So stay tuned for Tuesday folks, and watch how the rand and bond markets react. A contraction figure worse than consensus will be very bad. One that beats it will be nothing to gloat about. BM/DM