The South African economy is expected to contract in the third quarter …

When Statistics South Africa (Stats SA) releases the gross domestic product (GDP) reading for the third quarter (Q3) of this year on December 7, the economy is widely expected to contract in the three months of July to September, a major setback to the recovery from last year’s 6.4% contraction.

The main reason for this dismal performance – underscored by dismal third-quarter unemployment data – is the wave of unrest and looting that ravaged Gauteng and KwaZulu-Natal in July. The ringleaders behind the chaos have claimed more than 300 lives at their bloodstained hands and impoverished South Africa in the process, robbing many of their livelihoods. The indictment against them grows heavier.

“Considering all the turmoil we had in July and the lingering impact we had from it, I expect a contraction in the quarter,” Christie Viljoen, economist and senior executive at the Department, told DM168. accounting firm PwC.

PwC does not have a specific quarterly forecast, but Viljoen said the unrest and its aftershocks likely reduced growth for 2021 as a whole by a percentage point.

PwC’s forecast for GDP growth in 2021 is 3.8%, which is well below the official forecast, but it would have been 4.8% without the events of July. The latest forecast from the South African Reserve Bank (Sarb) is for growth of 5.2% this year, with an expected contraction of 2.5% in the third quarter. His forecast for the full year is just above the Treasury’s estimate of 5.1%.

But PwC, in its latest South African Economic Outlook, notes that over the past decade, real GDP growth has steadily fallen below expectations outlined in budget speeches. This is one of the reasons spending is based on unrealistic views of revenue forecasts, leading to widening budget deficits and increased debt burdens.

Viljoen said his forecast for 3.8% growth – which will leave South Africa well below pre-pandemic production levels – is based on his estimates of the impact of lockdowns and outages.

“We monitor the different levels of foreclosure and take the negative impact of load shedding very seriously. So our number is lower than most, ”he said.

Other economists have forecasts closer to those of the Treasury and Sarb, but a sharp third-quarter contraction – of, say, 3% or more – would likely see the forecast for the year revised down. There have been at least a few green shoots this quarter, such as a spike in the Absa Purchasing Managers Index in November.

Going back to the third quarter, the dismal state of the economy during those three months was highlighted by the last quarterly Labor Force Survey, which showed that the unemployment rate had climbed during this period. to reach a record 34.9%.

According to the expanded definition, which includes discouraged job seekers, the rate rose 2.2 percentage points to a shocking 46.6%.

“The latest unemployment figures are quite depressing when you consider that almost half of the population is unemployed. We expected the unemployment rate to rise following the unrest in July and after South Africa suffered a third wave of Covid-19 infections, ”said Jee-A van der Linde of Oxford Economics Africa in a data commentary.

“In addition, less than half of South African industries have succeeded in creating new jobs each year. Our medium-term forecast calls for real GDP growth of 1.8% on average [a year], compared to a similar growth rate for labor supply.

“This implies that the South African economy will not be able to [to] create enough new jobs to meet the growing demand for labor.

“In fact, the economy is expected to grow by at least 2.5% to 3.0% [a year] over the next few years for a sustained drop in the unemployment rate.

“Unless meaningful policy changes are implemented, we don’t see the unemployment rate return to pre-pandemic levels in the medium term,” Van der Linde wrote. DM168

This story first appeared in our weekly Daily Maverick 168 which is available for R25 at Pick n Pay, Exclusive Books and airport bookstores. For your nearest dealer, please click here.


Katy F. Molnar