The headline in Statistics South Africa’s Statistical Release on second quarter GDP reads:
GDP in the second quarter of 2020 fell by 51.0%,
with a footnote indicating that the growth rate is quarter-on-quarter, seasonally adjusted and annualized, and calculated using constant prices[1]. This approach to reporting is standard and in normal times it gives a good indication of short-term growth. But it is misleading when there has been a sharp and temporary shock, as several commentators have already observed. The 51% drop in GDP would occur if the GDP continued to contract at the same rate for the four quarters as it did between the first and second quarter. But nobody expects that to happen. There are indications from monthly output statistics that recovery is under way. The only question is how far and fast it will proceed, and whether the recovery will be derailed by a second wave of the epidemic.
One way of moving to a more sensible assessment is to de-annualize the growth rate. The drop in GDP then reduces to 16.3% between the first and the second quarter. Another way is to consider the drop in GDP between the second quarter of 2019 and the second quarter of 2020. In this case, there is no need for seasonal adjustment since the seasons are the same. This drop was 17.3%.
One can go further and ask what the impact of the epidemic both nationally and globally (since GDP is affected by exports and imports) and the measures taken to counter it was on the South African economy. To do this, one needs an estimate of what GDP would have been without the epidemic. The indications are that it would have been lower than in the first quarter in real terms, since South Africa had entered a recession before the onset of the epidemic, so that the drop associated with the epidemic was probably in the 15-16% range. On that basis, the cost of the epidemic in foregone output in the second quarter was R 200 billion, in round terms. There will be further costs in subsequent quarters but, absent a resurgence of the epidemic, they will become progressively smaller.
It is not possible to have the last word on the distribution of the burden of the epidemic in the second quarter at this stage. For that, we have to wait for the release of the second quarter Quarterly Employment Statistics (scheduled release date: 15 October) and the Quarterly Labour Force Survey (scheduled release date: 27 October). The QLFS, when released, should be compared with the findings of the National Income Dynamics Study’s Coronavirus Rapid Mobile Survey.
But it is possible to have a first word[2]. Table 1 in the Annexure presents information on the value added by industrial sector at basic prices in the first and second quarters of 2020. The national accounts build up price formation in three stages. The first stage is factor cost: the value of compensation of employees and of gross operating surplus. The second stage is basic prices. The basic price is the amount receivable by the producer from the purchaser for a unit of a good or service produced as output minus any tax payable, and plus any subsidy receivable, by the producer as a consequence of its production or sale. Valuation at basic prices modify gross operating surplus. The third stage is market prices, where basic prices are further modified by taxes and subsidies on products, mostly value added and excise taxes. The table presents information in seasonally unadjusted current price, so the effects of inflation, currently low, and of season are included in the changes between the first and second quarters.
Table 1 shows that:
Table 2 in the Annexure shows changes in the components of household expenditure. Household expenditure fell by 14.0% between Q1 and Q2. Increased uncertainty will have made households more cautious about expenditure, influencing demand. But the fact that household expenditure fell much further than compensation of employees, and changes in the pattern of spending indicate the presence of supply constraints arising from lockdown regulations. The components of household expenditure where the fall was greatest were restaurants and hotels, alcohol beverages, tobacco and narcotics, recreation and culture, clothing and footwear, and transport. All falls in these components were above 30%. These falls compare with a fall of 4.8% in spending on food and non-alcohol beverages.
Two points, by way of conclusion:
Charles Simkins
Head of Research
charles@hsf.org.za
Current prices |
|||||||||
Seasonally unadjusted |
Industry value added |
Compensation of employees |
Gross operating surplus |
||||||
R million |
Q1 |
Q2 |
Increase |
Q1 |
Q2 |
Increase |
Q1 |
Q2 |
Increase |
Agriculture, forestry and fishing |
25,656 |
39,981 |
55.8% |
8,385 |
8,683 |
3.6% |
17,271 |
31,298 |
81.2% |
Mining and quarrying |
86,828 |
71,874 |
-17.2% |
38,675 |
33,197 |
-14.2% |
48,153 |
38,677 |
-19.7% |
Manufacturing |
143,700 |
111,449 |
-22.4% |
89,956 |
77,781 |
-13.5% |
53,744 |
33,668 |
-37.4% |
Electricity, gas and water |
41,957 |
44,579 |
6.2% |
11,683 |
11,948 |
2.3% |
30,274 |
32,631 |
7.8% |
Construction |
40,805 |
32,716 |
-19.8% |
19,059 |
17,012 |
-10.7% |
21,746 |
15,704 |
-27.8% |
Trade, catering and accommodation |
167,734 |
127,210 |
-24.2% |
68,404 |
61,024 |
-10.8% |
99,330 |
66,186 |
-33.4% |
Transport, storage and communication |
105,893 |
81,892 |
-22.7% |
34,589 |
30,293 |
-12.4% |
71,304 |
51,599 |
-27.6% |
Finance, real estate and business services |
225,668 |
204,766 |
-9.3% |
98,809 |
92,036 |
-6.9% |
126,859 |
112,730 |
-11.1% |
General government services |
208,433 |
213,005 |
2.2% |
181,334 |
186,425 |
2.8% |
27,099 |
26,580 |
-1.9% |
Personal services |
68,491 |
60,867 |
-11.1% |
42,431 |
38,243 |
-9.9% |
26,059 |
22,624 |
-13.2% |
Total value added at basic prices |
1,115,165 |
988,339 |
-11.4% |
593,326 |
556,642 |
-6.2% |
521,839 |
431,697 |
-17.3% |
Worst hit |
544,960 |
425,141 |
-22.0% |
250,684 |
219,307 |
-12.5% |
294,276 |
205,834 |
-30.1% |
Current prices |
|||
Seasonally unadjusted |
|||
R million |
Q1 |
Q2 |
Increase |
Food and non-alcohol beverages |
157,624 |
150,033 |
-4.8% |
Alcohol beverages, tobacco and narcotics |
37,645 |
19,862 |
-47.2% |
Clothing and footwear |
32,641 |
19,577 |
-40.0% |
Housing, water, electricity, gas and other fuels |
116,164 |
117,744 |
1.4% |
Furnishings, household equipment, maintenance |
49,783 |
42,841 |
-13.9% |
Health |
59,300 |
59,744 |
0.7% |
Transport |
114,612 |
78,691 |
-31.3% |
Communication |
19,037 |
19,395 |
1.9% |
Recreation and culture |
34,298 |
20,320 |
-40.8% |
Education |
30,067 |
31,281 |
4.0% |
Restaurants and hotels |
20,513 |
3,855 |
-81.2% |
Miscellaneous goods and services |
84,553 |
87,344 |
3.3% |
Total |
756,238 |
650,687 |
-14.0% |
[1] Statistics South Africa, Gross domestic product: Second quarter 2020. Statistical Release P0441, 8 September 2020
[2] The data in this section are taken from the Excel spreadsheet GDP P0441-2020Q2 accompanying the Statistical Release