Economy contracts for third straight quarter, deepening recession

There was a contraction 2% according to Stats SA, which was better than market expectations of a quarterly decline of 4%

30 June 2020 - 12:58 By Lynley Donnelly
The economy contracted 2% in the first three months of 2020.
The economy contracted 2% in the first three months of 2020.
Image: 123RF/NIRUT

SA’s economy shrank for the third consecutive quarter, at the start of this year, testament to the difficulties it faced even before the onslaught of the coronavirus pandemic.

The economy contracted 2% in the first three months of 2020, data released by Stats SA on Tuesday showed. This is down from the 1.4% decline in the last quarter of 2019, when SA slid into a recession, reports BusinessLIVE.

Alongside an already weak growth environment, the first three months of the year experienced rolling power cuts by embattled power utility Eskom. Mining and manufacturing were the biggest drags on growth, with mining declining 21.5% and manufacturing 8.5%.

There was some load-shedding at the start of the quarter, while the effects of the pandemic were beginning to be felt even though SA had not yet entered its full lockdown, which started on March 27, said Joe de Beer, deputy director-general for economic statistics at Stats SA.

In the weeks ahead of the lockdown, SA had already instituted some regulations. Some of SA’s trading partners were already experiencing pandemic-related shutdowns, which affected SA’s trade and supply chains during the quarter, De Beer said. 

The figures were released a month after SA began the process of reopening its economy, moving to level 3 of lockdown restrictions on June 1.

Despite an increase in business activity, the economy is expected to contract 7.2% this year according to the Treasury. Estimates from some private economists and business organisations believe the contraction could exceed 10%.

Though a fall was anticipated, it was lower than market expectations, which were for a quarterly decline of 4%, according to a Bloomberg survey of 15 economists. This is the steepest fall since the first quarter of 2019 when the economy shrank 3.2%.

On the expenditure side of GDP, growth fell by 2.3% during the first quarter. The sharpest decline came from a decline in gross fixed-capital formation — an indicator of investment in the economy — which shrank 20.5%.

Update: June 30 2020
This article has been updated with comment and information from Stats SA.