Reform Needed

South Africa looks to chart a difficult road to economic recovery after a COVID-19 impacted 2020

- Hannah Marais, Hanns Spangenberg and Sam Rolland

Over the past few years, South Africa has struggled with weak growth, rising unemployment and mounting public debt. Even before the COVID-19 pandemic struck, recessionary pressures were acute, with the economy in a technical recession, given two consecutive quarters of negative growth in the latter half of 2019.

COVID-19 changed the already challenging economic outlook for the worse, further exposing deep structural divides in the economy. With strict lockdown restrictions in place since end-March 2020, South Africa prioritized its response to the health crisis by aiming to save as many lives as possible.

This prioritization saw the country face an almost unique situation in its history - economic activity faced a system-wide shock from both supply and demand sides, coming to a complete halt for a number of weeks in the second quarter across many sectors. Real GDP dropped by 51 percent quarter on quarter (seasonally adjusted and annualized) in Q2 of 2020, after a 1.8 percent quarter on quarter (seasonally adjusted and annualized) contraction in Q1.

Most affected sectors

According to data released by the Statistics South Africa, the economy-wide slowdown was most felt in the manufacturing sector - which contracted 74.9 percent quarter on quarter (seasonally adjusted and annualized) and made the largest contribution to the overall slowdown. The second-largest contribution stemmed from the trade and accommodation sector, which contracted by 67.6 percent quarter on quarter (seasonally adjusted and annualized). In the third place was the transport sector, down 67.9 percent quarter on quarter (seasonally adjusted and annualized). The agricultural sector was the only one that posted growth, albeit marginal.