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SA’s manufacturing production slides 16.3% y/y due COVID-19
The COVID-19 pandemic and lock-down regulations have had an extensive impact on economic activity. Stats SA reported that manufacturing production decreased by 16.3 per cent in June 2020, compared with June 2019. Annabel Bishop, Chief Economist at Investec joins CNBC Africa to give insight into the contributors, and the utilisation of manufacturing capacity in South Africa.
Tue, 11 Aug 2020 15:46:58 GMT
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- The manufacturing production in South Africa plummeted by 16.3 percent in June 2020 compared to the previous year, signaling a severe contraction exacerbated by the COVID-19 pandemic and lockdown measures.
- Annabel Bishop warns of a 48% GDP contraction in the second quarter, with a 76.2% quarter-on-quarter seasonally adjusted annualized basis, indicating a substantial economic downturn.
- The capacity utilization in the manufacturing sector has declined by 20.4% year-on-year in May 2020, reflecting a broader trend of economic contraction and signaling a challenging road to recovery.
South Africa's manufacturing sector is facing a severe downturn as a result of the COVID-19 pandemic and the subsequent lockdown regulations. Statistics South Africa reported a significant decrease of 16.3 percent in manufacturing production in June 2020 compared to the same month in 2019. Annabel Bishop, Chief Economist at Investec, highlighted the gravity of the situation in a recent interview with CNBC Africa. She indicated that the GDP is expected to contract by a staggering 48% in the second quarter of the year. This translates to a 76.2% contraction on a quarter-on-quarter seasonally adjusted annualized basis, which is the metric by which GDP is measured. The impact on other sectors such as electricity production has also been substantial, with a 71.4% contraction in the same period. Annabel emphasized that the industrial sector was hit hard due to the stringent lockdown measures, while the retail sector is expected to show more resilience initially.
The collapse in manufacturing production has had a ripple effect on the supply chain, both domestically and globally. Annabel warned that the recovery may not be as robust as anticipated in the second half of the year, citing a significant drop in incomes and a sharp increase in unemployment. She referred to data from South Africa's largest clearing house, indicating a 20% year-on-year decline in payments of pensions, salaries, and wages, underscoring the extent of job losses in the country. The bleak economic outlook has led Investec to revise GDP growth estimates downward, with consensus forecasts also expected to worsen significantly.
The capacity utilization in the manufacturing sector has also shown a sharp decline, with a 20.4% year-on-year contraction in May 2020. This, coupled with the overall economic downturn, points to a challenging period ahead for South Africa. Annabel compared the current situation to the aftermath of the 2009 global financial crisis, noting that the current contraction far exceeds that of the previous recession. She expressed concerns that the recovery might be slower than anticipated, as many economic indicators are lagging behind the actual impact of the pandemic.
Looking ahead, Annabel highlighted the importance of swift and effective policy interventions to support the ailing economy. While acknowledging the need for structural reforms, she emphasized the immediate steps that could be taken by the government to stimulate economic activity. She cited the growth plan outlined by the National Treasury, which includes measures to boost revenue and streamline government operations. However, Annabel noted that political opposition and vested interests pose significant challenges to implementing these reforms.
Regarding the volatility of the South African rand, Annabel dismissed calls for intervention to control the currency, attributing the fluctuations to global market dynamics. She stressed the importance of fiscal discipline to restore investor confidence and prevent further credit rating downgrades. Annabel warned that prolonged economic instability could push South Africa towards a debt default in the future, underscoring the urgency of implementing growth-enhancing measures.
In conclusion, Annabel Bishop painted a sobering picture of South Africa's economic prospects in the wake of the COVID-19 crisis. The manufacturing sector's sharp decline, coupled with high unemployment and mounting fiscal challenges, underscores the need for decisive action to steer the economy towards recovery. The road ahead may be fraught with obstacles, but proactive measures and prudent economic management could pave the way for a more resilient and sustainable future for South Africa.
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