People & Money

South African Economy Shrinks 7%, Biggest Slump Since 1946

The South African economy has been impacted by the lockdown in global markets in addition to that which impeded domestic economic activities.”

South Africa’s gross domestic product shrank 7% last year compared with a 0.2% expansion in 2019, according to the Q4 2020 GDP report released by Statistics South Africa Tuesday. That’s the biggest economic decline since 1946 or since the end of World War II.

The historic contraction came as restrictions to curb the spread of the novel coronavirus pandemic constrained economic activities and trade. 

The economy however expanded by 1.5% in the fourth quarter, stronger than economists expected according to Bloomberg. “Eight of the ten industries made positive gains in the fourth quarter, most notably manufacturing and trade. Mining and finance, real estate, and business services were the two industries that recorded a decline in economic activity,” the agency said.

The construction industry growth declined by as much as 20.3% and the manufacturing sector’s overall yearly growth declined by 11.6%. With most people forced to stay indoors for most of 2020, a decline in air travel contributed to a contraction in the transport industry. Only the agricultural sector (13.1%) and government (0.7%) experienced expanded economic growth in 2020.

Also Read: On the Nigerian Economy and Its Emergence From Recession

The severe contraction in GDP last year makes South Africa one of the hardest-hit major economies on the continent in the wake of the new coronavirus pandemic and hard national lockdowns that started in late March 2020. President Cyril Ramaphosa last month eased some of the restrictions on the economy, which was in a recession even before it confirmed its first Covid-19 infection last year. 

South Africa’s economy is stuck in a long downward cycle of high fiscal deficits and anemic growth. A faster economic rebound to pre-Covid-19 levels is needed to rein in debt successfully. 

Similarly, Nigeria, the region’s largest economy surprisingly grew by 0.11% in Q4 2020 while economic growth slowed by just 1.9% for the whole year. The price of Nigeria’s dominant source of foreign exchange and government revenue, crude oil, was hammered by global lockdowns. 

The South African economy is more vulnerable to the pandemic as it is more integrated into the global economy. Exports constitute 14.2% of Nigeria’s GDP while it is 29.8% of South Africa’s economy per World Bank data. The South African economy has thus been impacted by the lockdown in global markets in addition to that which impeded domestic economic activities.  

Also Read: Lai Mohammed Celebrates Nigeria’s Milder Recession, Economists Say It’s Due to Weak Export Base

The impact of the pandemic on Nigeria’s economy has been mainly in terms of lower volumes of oil exports. For instance, the United States slashed its Nigerian crude oil imports oil by 11.67 million barrels between January to May 2020, compared to what it bought in the same period of 2019. Local oil production dropped in Q2 2020 to its lowest since 2016 – when Nigeria endured a full year of negative growth.

Nigeria’s larger agriculture sector, 21.91% of GDP as opposed to the 1% share of the South African economy, has also aided growth. Agriculture is significantly less contact-intensive than manufacturing and services, hence production and exchange have largely continued.

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