South Africa’s economy contracts by 51% in the second quarter of 2020? Not so fast

The government agency Statistics South Africa released figures on the country’s gross domestic product for the second quarter of 2020 on 8 September. Many expected the economy to have taken a significant knock during April, May and June when the country was under Covid-19 lockdown

The figures showed a steep drop in South Africa’s GDP. Stats SA reported an annualised rate of -51% growth in the second quarter of 2020. 

The headlines almost wrote themselves as several media organisations rushed to report that South Africa’s economy had contracted by 51%. But not so fast. 

Annualised vs quarterly growth

Gross domestic product (GDP) is a measure of the size of a country’s economy. It is the market value of all goods and services produced in a given period, usually a year.

In the first quarter of 2020, South Africa recorded a GDP of R3.129 trillion. This figure dropped to R2.617 trillion in the second quarter of the year. This means the economy shrank by 16.4%. 

So where does the -51% figure come in? This refers to South Africa’s annualised GDP growth rate. The measure shows what growth would be if the reported quarter-on-quarter growth rate were maintained for a full year

“If this trend continues for the next three quarters, until the end of March next year, we can say the economy has contracted by 51%,” Prof Jannie Rossouw, head of the school of economic and business sciences at Wits University, told Africa Check. If that happens, South Africa’s GDP will decline to around R1.53 trillion in the first quarter of 2021. 

But this was unlikely, Rossouw said. “We all expect economic activity to be much better in the third quarter because we’ve moved from level five to level two lockdown.” So the growth rates could look completely different at the end of the third quarter, Rossouw said. 

Annualised figures are an internationally accepted method of measuring and reporting on GDP. But Rossouw said reporting on that figure alone was misleading. – Cayley Clifford

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