South Africa’s GDP data was anticipated to be bad, but it ended up to be worse, says Maarten Ackerman, chief economist and advisory partner, Citadel – which means that a credit downgrade is unavoidable.

Ackerman noted that the GDP number came in below expectations, and has sent the country back into a technical recession.

However, the economist pointed out that a technical recession is merely a statistical measure of a recession (two successive quarters of economic decline), adding that South Africa has in fact been in recession since 2013 in terms of per capita growth.

This is owing to the country’s inability to achieve growth of above 1% or at levels above our population growth, which is currently 1.4%. “As a result, the country’s social issues such as poverty, inequality and unemployment continue to grow more acute,” he said.

GDP per capita is a measure of a country’s economic output that accounts for its number of people. It is often used a more accurate representation of real economic growth in a country, as a higher population should yield a greater GDP output.

So while South Africa has avoided overall GDP decline over the years of economic hardship – on a per capita basis, we’re getting poorer, as the growing population becomes less productive.

Worse than previously thought

Things are worse than previously thought, Ackerman said, with the GDP data reflecting the impact of the structural issues weighing on the economy – in particular, the effect of electricity constraints and Eskom’s woes.

A further 1.4% contraction in the economy in the fourth quarter of last year has brought total GDP growth for 2019 to just 0.2%, Stats SA showed.

“To put this figure into perspective, at the beginning of 2019 the South African Reserve Bank and National Treasury anticipated growth of around 1.5%.

“The anemic growth of 0.2% seen instead does a great deal to explain some of the fiscal challenges we are currently facing, as an economy that is growing 1.3% less than expected will have had a massive impact on revenue collection targets,” Ackerman said.

Other takeaways from the GDP data include declines in areas earmarked for job creation – including agriculture and manufacturing – which does not bode well for the local job market.

Household expenditure has held up, growing by 1.4%, which shows that households are supporting the economy at the moment, and that the tax breaks announced in the 2020 budget were a good move.

However, the 10% decline seen in gross fixed capital formation (GFCF) was “particularly shocking”, Ackerman said.

“Unfortunately, with business confidence also at decade lows, this marked decline shows once again that the investment community remains uncertain about South Africa’s policy environment and the way forward,” he said.

Dismal outlook

The first quarter of this year is going to be very bleak,” said Ackerman. “We are facing local issues such as load shedding and electricity supply constraints, while globally there has been a significant slowdown in China as a result of the coronavirus (Covid-19),” he said.

“One of our biggest trading partners, China has just reported a PMI index that dropped to 40.3, its lowest since the survey began in April 2004 and the fastest decline on record.

“This means that our headwinds will definitely rise in Q1 2020, so the recessionary environment will probably continue into 2020.”

The economist said that this will, in turn, place South Africa’s budget numbers at great risk of not being achieved, and the expected 0.9% growth for the year will almost certainly turn out to have been too optimistic.

“A credit rating downgrade appears unavoidable,” he said.

Read: South Africa enters technical recession as fourth quarter GDP sinks