SA’s 85-month downward cycle may linger with new rules

The South African economy’s ability to recover from its longest downward cycle since 1945 has been dealt a blow by new restrictions to curb surging coronavirus infections.

The economy entered the 85th month of a weakening cycle in December, according to the Reserve Bank’s Quarterly Bulletin released Tuesday. That’s as business and consumer confidence continue to languish at multiyear lows, even after the economy emerged from its longest recession in 28 years in the third quarter, following the gradual easing of a hard lockdown imposed from March 27.

The initial virus restrictions that shuttered almost all activity except for essential services for five weeks forced businesses to close and wiped out almost a decade of job gains, putting the economy on course to contract the most in almost nine decades this year. The latest restrictions announced by President Cyril Ramaphosa Monday night could slow the recovery.

The type of restrictions announced by the president “could curtail economic activity in specific sectors or industries to varying degrees,” the Reserve Bank said in an emailed response to questions. “Although this might slow the pace of economic growth, and the recovery, somewhat, it might not have a specific effect on the timing of a lower turning point in the business cycle. This is because the economy has already rebounded from such a low base in the second quarter of 2020.”

The last major declining cycle in the economy lasted 51 months between 1989 and 1993, when the former all-white government renewed a state of emergency and the country prepared for its first democratic elections. The central bank monitors about 200 indicators representing economic processes such as production, sales, employment and prices to determine the direction of the trend.

These are some of the other key points from the Quarterly Bulletin for the three months through September:

• There were foreign direct investment outflows of R16.5 billion ($1 billion), compared with R17.4 billion of inflows in the previous quarter.
• Portfolio investment outflows of R28.8 billion were recorded, down from a R54.8 billion outflow in the second quarter.
• Other investment liabilities switched to an inflow of R40.7 billion from a revised outflow of R34.5 billion in the previous quarter, partly due to the receipt of a $4.3-billion emergency loan from the International Monetary Fund and a $1 billion facility from the New Development Bank to combat the effects of the pandemic.
• Household debt as a percentage of disposable income fell to 75.7% from 86.5%.
• The national government’s total gross loan debt increased by 20.3% year-on-year to R3.7 trillion, or 75.2% of gross domestic product by September 30. The National Treasury’s medium-term budget policy statement predicted a debt-to-GDP ratio of 81.8% for the fiscal year through March 2021.
• Growth in nominal unit labour costs in the formal non-agricultural sector accelerated to 10.3% in the second quarter from a revised 4.3% in the three months through March. That’s the highest annual increase since the second quarter of 2010 and came even as productivity contracted by 11.8%, the sharpest rate yet.