GDP in the first quarter of 2020

The South African economy endured its third consecutive quarter of output contraction, with GDP growth of -2.0% during the first quarter. Though this is a poor outcome, it is somewhat better than expected, with economists having anticipated closer to -4.0% quarter-on-quarter.

Recent activity translates to year-on-year real GDP “growth” of -0.1%, and speaks to the challenging backdrop alluded to in last week’s Supplementary Budget.

The growth outlook going forward remains bleak unfortunately, and forecasts have progressively been lowered. The recession is expected to deepen markedly as the year unfolds, with economic activity having collapsed under the lockdown measures aimed at mitigating the COVID-19 crisis. Second and third quarter growth will be particularly hard-hit with activity having ground to a halt, but we could see a small rebound heading into year-end should conditions begin to normalise. National Treasury recently announced that they expect the economy to shrink 7.2% for 2020, amid the largest contraction in almost a century. The International Monetary Fund is more circumspect however, forecasting -8.0% for the year.

The current economic situation remains fluid and while there is no shortage of risks at the moment, financial markets are showing signs of a potentially more optimistic outlook. Global stock markets for example have rebounded sharply in recent weeks, and given their forward-looking nature, seem to suggest a swift return to normalisation due largely to fiscal and monetary support. This remains to be seen however, and we’ve preferred to adopt a more cautious stance given the current lack of visibility and weak fundamental backdrop.