South Africa records lowest GDP in a century as economy shrinks 7% in 2020 amid COVID-19

• Economy may not rebound until 2024, experts say

Zainab Iwayemi

A report released by Statistics South Africa has shown that South Africa’s Gross Domestic Product, GDP, declined by 7 percent in the year 2020 compared with the 0.2 percent expansion in 2019. However, the drop which represents the biggest decline since 1920 was smaller than what the National Treasury forecast in its annual budget last month.

Restriction in many economic activities due to COVID-19 led many countries to record set back in the GDP for the year 2020. The negative trend, however, seems to be greatly felt in South Africa as its GDP rocked downward marking its lowest in a century. The economy is in its longest downward cycle since World War II following policy and weak business sentiment weighing on fixed investment spending, coupled with private-sector companies’ wariness to commit large sums of money to domestic projects.

As economic activities gradually resume, giving hope for normalcy to be restored, it is believed that the loss would linger on for at least the first half of the year 2021, before positivity begins to set in.  Those who are familiar with the South African economy have predicted that there would be a loss in momentum in the recovery to extend to the first half of the year due to ongoing virus risks amid a slow vaccine rollout.

The South African Reserve Bank has already signaled two rate hikes this year starting from the second quarter. However, it is believed that the risks to the near-term growth outlook would keep rates on hold for the first half of the year, at least. The better-than-expected GDP outcome, together with rising food, oil and electricity prices will likely strengthen its resolve.

However, experts have noted that due to lower government spending and a weak recovery in employment, the growth will be slow. In the position of economists at FirstRand Group Limited’s Rand Merchant Bank, “The economy may only return to where it was at the end of 2019 by 2024, due to longstanding constraints such as electricity shortages, a slow reform agenda and repeated waves of Covid-19 infections,” he said.

On Feb 28, President Cyril Ramaphosa moved the country to virus alert level 1 from level 3 thereby relaxing restrictions on the economy which was already in a recession even before it detected its first Covid-19 case a year ago. Meanwhile, lockdown to contain the virus initially started in March 2020.