Compiled by: RA Downing, Econdow CC, In association with CMV Group & Perseus VC1
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SARS REF. – VCC 0113
Economic Developments in the 3rd Quarter 2020
- The economy still experiences junk investment status
- Although the technical recession (two consecutive quarters of economic decline) might have ended, economic activity has been severely dented by the junk investment status, Covid-19 lockdown, and low business and investor confidence
- The Medium-term Budget Policy Statement (MTBPS) confirmed the fiscal cliff hanger situation for all levels of government and SOEs. Serious structural and financial adjustments are imperatives for fiscal policy in the next five years
- The dire economic situation reveals the devastating effect of radical external interventions like Covid-19 on an already weak economic situation and business climate
- The SACCI Business Confidence Index with 2015 = 100, improved to 87.8 in the 3rd quarter 2020 from a severely depressed 2nd quarter level of 78.1 – this compared to 91.2 in the 3rd quarter 2019
- The general business environment for SMMEs also improved, but was even more difficult as the GBEi (General Business Environment Index) improved to 81.9 in the 3rd quarter 2020 from 75.6 in the 2nd quarter 2020 – still well below the 97.0 in the 3rd quarter of 2019. It appears that SMMEs find it more difficult to overcome the lockdown process than larger businesses
- Weak domestic economic conditions were present on the demand and supply side. Important indicators declined between the 3rd quarter 2020 and 3rd quarter 2019. Retail sales volumes were down by 6.5% y/y; manufacturing output minus4% y/y; mining output minus 4.4% y/y; new vehicle sales minus 26.8% y/y; electricity generated minus 3.4% y/y; and real value of building plans passed down by 6% y/y
- Weak real demand causes consumer and producer inflation to be benign around 3%
- Institutional incapacity of the state, maladministration, and corrupt practices continue unabated
- Domestic savings shortfall not supplemented by foreign investment as net sales of bonds and equity by non-residents amount to R241 billion in the 1st nine months of 2020 compared to net sales of R141 billion in the whole of 2019
- Unemployment (discouraged work seekers included) declined in the 3rd quarter to 45.3% from 47.5% in the 2nd quarter of 2020, but still unacceptably high
The Road Ahead
- IMF expects world economic growth and trade prospects to improve on the dismal 2020 performance – see tables below
- RSA GDP expected to be 9.6% lower in the 3rd quarter of 2020 than a year ago, but 7.6% y/y lower in the 4th quarter, and thus an expected 8.9% y/y decline for 2020 as a whole
- GDP could decline by 11% y/y if stricter lockdown is imposed again
- GDP is predicted to grow by 5% in 2021 from the low 2020 base
- World trade volumes to pick up in 2021 and could enhance export led growth in emerging markets
- The anticipated best performing sectors in RSA in 2020 will remain agriculture, financial services, trade, and manufacturing – in that order
- The Rand to remain volatile and under pressure in 2021 against major trading currencies
- Monetary easing may not continue given the structural nature of challenges looming for the economy
- Micro strategic decisions for business notably SMMEs – ring fence and maintain liquidity – financial survival critical into 2021. Loans and advances to the business sector slow to 4.6% y/y in the 3rd quarter 2020 from 8.3% y/y in the 2nd quarter 2020
Economic recovery slower than anticipated
Retail demand boxed in by higher unemployment and household debt
Better global economic and trade prospects in 2021 albeit from low 2020 base
Rand volatility to continue
Supply base of economy remains vulnerable
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)