South Africa’s economy shrank by most in century last year | Business and Economy News

March 9, 2021 6:47 pm by Web Desk

South Africa’s economy took its hardest knock in a century last year due to the pandemic.

South Africa’s economy contracted the most in a century in 2020 as restrictions to curb the spread of the coronavirus pandemic ravaged output and disrupted trade.

Gross domestic product shrank 7%, compared with a 0.2% expansion in 2019, according to a report released by Statistics South Africa Tuesday in the capital, Pretoria. That’s the biggest decline since 1920, yet the drop was smaller than what the National Treasury forecast in its annual budget last month.

The economy may only return to where it was at the end of 2019 by 2024, due to longstanding constraints such as electricity shortages, a slow reform agenda and repeated waves of Covid-19 infections, according to Mpho Molopyane, an economist at FirstRand Group Ltd.’s Rand Merchant Bank. Lower government spending and a weak recovery in employment will also affect growth, she said.

The fourth-quarter expansion was stronger than economists expected, and a faster rebound to pre-Covid-19 levels will boost the government’s efforts to rein in debt and the fiscal deficit that surged over the past year.

What Bloomberg Economics Says

“We expect the loss in momentum in the recovery to extend to the first half of the year due ongoing virus risks amid a slow vaccine rollout. The South African Reserve Bank has already signaled two rate hikes this year starting from the second quarter. However, we think the risks to the near-term growth outlook should keep rates on hold for the first half of the year, at least. The better-than-expected GDP outcome, together with rising food, oil and electricity prices will likely strengthen its resolve.”

-Boingotlo Gasealahwe, Africa economist

GDP expanded an annualized 6.3% in the three months through December from the previous quarter, following an upwardly revised 67.3% increase in the three months through September. The median estimate of 15 economists in a Bloomberg survey was for a 5.6% increase. GDP contracted 4.1% year-on-year in the fourth quarter.

President Cyril Ramaphosa moved the country to virus alert level 1 from level 3 on Feb 28, dropping most of the restrictions on an economy that was in a recession even before it detected its first Covid-19 case a year ago. The nation’s initial hard lockdown to contain the virus started in late March 2020.

South Africa’s economy is stuck in its longest downward cycle since World War II as policy paralysis and weak business sentiment weigh on fixed investment spending, with private-sector companies wary to commit large sums of money to domestic projects.

Click here for a breakdown of the annualized GDP data

(Updates to add analyst’s comment and more context from third paragraph)
–With assistance from Simbarashe Gumbo.

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