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The recovery in domestic economic activity following the sharp contraction in the second quarter of 2020 continued in the fourth quarter as the national coronavirus disease 2019 (COVID-19) lockdown restrictions were eased further. However, growth in the real gross domestic product (GDP) moderated markedly to an annualised rate of 6.3% in the fourth quarter of 2020, from a revised 67.3% in the third quarter. For the year as a whole, real GDP contracted by a substantial 7.0% after a marginal increase of only 0.2% in 2019. The national lockdown-induced contraction in 2020 was the second-largest annual contraction since 1920, when real GDP fell by 11.9%, and was also about five times larger than the contraction of 1.5% that followed the global financial crisis (GFC) in 2009.

The slowdown in output growth in the fourth quarter of 2020 was broad-based as growth decelerated sharply in the primary, secondary and tertiary sectors. Following a strong rebound in the third quarter of 2020, the real gross value added (GVA) by the primary sector increased by only 0.5% in the fourth quarter. A further increase in real agricultural output, albeit at a much slower pace than in the previous quarter, marginally outweighed the renewed contraction in mining output. Lower production of coal, diamonds and, in particular, platinum group metals (PGMs) weighed down overall mining output. PGM production was negatively affected by industrial action and some maintenance challenges. The agricultural sector was one of only two sectors where real output increased in 2020. This reflected the bumper maize and citrus harvests, increased foreign demand and, as an essential goods provider, the relatively smaller impact that the COVID-19 restrictions had on the sector.

The expansion in the real output of the secondary sector was driven largely by a further strong increase in the real GVA by the manufacturing sector, which also contributed the most to overall real GDP growth in the fourth quarter of 2020. The real output of the construction sector as well as that of the sector supplying electricity, gas and water also increased further in the fourth quarter, but to a lesser extent. Electricity production and consumption both recovered further to pre-lockdown levels, although the increases were more subdued than during the previous quarter and reflected the renewed implementation of load-shedding towards the end of the quarter. Output in the construction sector declined sharply in 2020, marking the fourth successive annual contraction, and remained well below pre-lockdown levels in the fourth quarter of 2020.

Growth in the real GVA by the tertiary sector slowed sharply in the fourth quarter of 2020. Output contracted slightly in the finance, insurance, real estate and business services sector, while growth moderated in the commerce; transport, storage and communication as well as the general government services sectors. The real output of the commerce sector was suppressed by a contraction in wholesale trade activity. The real GVA by the transport sector was supported by an increase in the volume of goods transported by both rail and road to pre-lockdown levels, while passenger transportation was still weighed down by caution among both business and leisure travellers.

Similar to real GDP, growth in real gross domestic expenditure (GDE) moderated from 25.4% in the third quarter of 2020 to 11.2% in the fourth quarter. Real final consumption expenditure by general government rose slightly faster while that by households as well as real gross fixed capital formation increased at a slower pace. Real inventory holdings decreased at a slower pace and, together with real household consumption expenditure, contributed the most to real GDP growth in the fourth quarter of 2020, while real net exports detracted from growth. For the year as a whole, real GDE declined by 8.9% – the third but most acute annual contraction since 2009 in the wake of the GFC – following a slight increase of 0.7% in 2019.

The slower growth in real household consumption expenditure in the fourth quarter of 2020 was broad-based as real outlays on all spending categories increased at a slower pace.

The deceleration was particularly pronounced in spending on durable goods, which reflected a contraction in real outlays on personal transport equipment and slower growth in all other durable goods categories. Following a moderate increase in 2019, real final consumption expenditure by households contracted by 5.4% in 2020, more than double the GFC-induced contraction in 2009. Purchases of durable, semi-durable and non-durable goods as well as services all contracted in 2020, mainly due to the adverse effects of the COVID-19 pandemic, which resulted in slower growth in households’ real disposable income, rising unemployment and weak demand for large purchases amid the uncertain environment.

Household debt increased at a faster pace in the fourth quarter of 2020, with the ratio of debt to disposable income increasing slightly to 75.3%, from 74.9% in the third quarter. However, households’ cost of servicing debt relative to disposable income decreased slightly further from 7.8% in the third quarter of 2020 to 7.7% in the fourth quarter. Although annual growth in household debt moderated in 2020, as a percentage of nominal disposable income it increased from 72.9% in 2019 to 77.1% in 2020, as the increase in household debt exceeded that in households’ nominal disposable income following the impact of COVID-19.

Households’ net wealth increased further in the fourth quarter of 2020 as the increase in total assets outweighed that in total liabilities. The increase in household assets was largely driven by equity and deposit holdings, with equity holdings boosted by the 9.5% increase in the FTSE/JSE All-Share Price Index (Alsi) in the fourth quarter of 2020. However, households’ net wealth deteriorated in 2020 compared with 2019, as the value of assets decreased somewhat while that of liabilities increased slightly. Nevertheless, the ratio of households’ net wealth to nominal disposable income increased in 2020, with net wealth amounting to roughly 3.7 times the value of disposable income, as significant job losses impacted household income more than wealth.

Although real gross fixed capital formation increased further in the fourth quarter of 2020, it remained well below pre-lockdown levels. Real capital spending by public corporations rebounded after two consecutive quarters of notable contraction, while capital outlays by the general government increased at a faster pace. By contrast, fixed investment by private corporations increased at a significantly slower pace than in the third quarter. Real gross fixed capital formation contracted sharply in 2020 as a whole – a third successive annual contraction – led by significant declines in real capital outlays by private business enterprises and public corporations, as fixed investment spending decreased across all industries.

South Africa’s national saving rate declined from 16.4% in the third quarter of 2020 to 14.4% in the fourth quarter. The lower saving rate of households, and in particular of corporate business enterprises, outweighed the smaller dissaving by the general government. Despite large quarter-to-quarter fluctuations, the annual national saving rate remained at 14.6% in both 2019 and 2020.

Although household-surveyed employment increased slightly in the fourth quarter of 2020, the level of total employment was still about 1.4 million (8.5%) below that of a year earlier. The labour force increased further as job searching picked up following the further easing of the COVID-19-related lockdown restrictions. Unfortunately, the quarterly increase in employment was surpassed by the increase in unemployment, which brought the number of officially unemployed persons to 7.2 million – the highest number on record. South Africa’s official unemployment rate thus increased further from 30.8% in the third quarter of 2020 to 32.5% in the fourth quarter. The seasonally adjusted unemployment rate also increased, from 30.5% to 33.2% over the same period.

Growth nominal remuneration per worker in the formal non-agricultural sector reverted from an all-time low of -2.6% in the second quarter of 2020 to a marginal increase of 0.1% in the third quarter, assisted by the gradual return to work of furloughed workers in especially the private sector. However, this was only enough to slightly lessen the contraction in real wages per worker, with the pace of decrease only decelerating marginally to 4.2% in the third quarter. This was consistent with the average wage settlement rate in collective bargaining agreements which decreased further to a 15-year low in 2020. Growth in labour productivity and unit labour cost corrected somewhat from the COVID-19-induced distortion in the second quarter of 2020. Labour productivity in the formal non-agricultural sector of the economy contracted at a significantly slower pace of 0.2% in the third quarter of 2020, while growth in nominal unit labour cost decelerated markedly to 0.3%. Growth in economy-wide nominal unit labour cost moderated notably from a 27-year high of 12.6% in the second quarter of 2020 to 4.6% in the third quarter and subsequently to 3.9% in the fourth quarter, indicating the absence of inflationary pressures emanating from wage increases.

Headline producer and consumer price inflation both accelerated moderately from nadirs in May 2020, but still recorded historic annual average lows of 2.5% and 3.3% respectively for the year as a whole, primarily reflecting the marked decrease in fuel prices in the wake of the COVID-19 pandemic. Despite the generally benign inflationary environment, the prices of some intermediate inputs to manufacturing production have increased notably in recent months, in part due to supply-chain-induced shortages, such as basic and fabricated metals. In addition, the prices of most international commodities have increased further in recent months, following expectations of a recovery in the global economy. Domestic food price inflation also accelerated during the second half of 2020, but receded somewhat in January 2021. Nevertheless, underlying inflationary pressures remained muted, with core inflation slowing for a fourth successive year to an annual average of 3.3% in 2020.

Although the value of South Africa’s net gold and merchandise exports rose further to a new all-time high in the fourth quarter of 2020, the trade surplus narrowed from the record-high in the third quarter as the value of merchandise imports increased at a faster pace. The higher value of merchandise exports reflected further increases in the export values of mining and manufactured goods, supported by the continued recovery in global trade and the surge in international commodity prices. The increase in the value of merchandise imports reflected relatively firm domestic demand for manufactured goods and certain mining commodities to replenish low stock levels to facilitate increased production. However, despite a second consecutive quarterly increase, the value of merchandise imports contracted by 12.2% for 2020 as a whole – the largest annual contraction since 2009.

The smaller trade surplus, alongside a sizeable widening of the shortfall on the services, income and current transfer account, narrowed the surplus on the current account of the balance of payments from 5.9% of GDP in the third quarter of 2020 to 3.7% in the fourth quarter. The deficit on the income account widened significantly in the fourth quarter of 2020, mainly due to a marked increase in gross dividend payments from a very low base in the third quarter. On an annual basis, South Africa’s balance on the current account of the balance of payments switched from a deficit in 2019 to a surplus in 2020 in the midst of the COVID-19 pandemic – the first annual surplus since 2002.

The net flow of capital on South Africa’s financial account of the balance of payments recorded an outflow of R58.9 billion in the fourth quarter of 2020, following an upwardly revised outflow of R56.5 billion in the third quarter. On a net basis, portfolio investment and in particular other investment recorded outflows, which were partially countered by direct investment and reserve asset inflows. Portfolio investment flows reflected continued non-resident net sales of South African equities as well as the further acquisition of foreign portfolio assets by South African residents, which was partly countered by non-resident net purchases of domestic debt securities in the fourth quarter. For the year as a whole, non-resident investors disposed of domestic portfolio assets of R159.3 billion compared with an acquisition of R87.5 billion in 2019, while the cumulative flows on the financial account switched to an outflow of R132.7 billion from an inflow of R104.8 billion over the same period.

South Africa’s positive net international investment position (IIP) decreased marginally in the three months to the end of September 2020, as the value of foreign liabilities increased slightly while that of foreign assets remained broadly unchanged. Lower foreign assets in most of the functional categories were countered by increases in portfolio investment and reserve assets. The higher value of foreign liabilities reflected increases in all functional categories, except financial derivatives.

Following a number of interventions by most governments and central banks, volatility in foreign exchange markets subsided somewhat during the second half of 2020. The nominal effective exchange rate (NEER) of the rand increased significantly by 11.6% in the fourth quarter of 2020, as global sentiment towards emerging market currencies was buoyed by the outcome of the US presidential elections and advances in the development and later the rollout of COVID-19 vaccines. The NEER then decreased in January 2021 as the US dollar appreciated and following the implementation of further lockdown restrictions brought about by a second wave of COVID-19 cases in South Africa. In February 2021, the exchange value of the rand appreciated again as global sentiment towards emerging market currencies improved once more.

South African government bond yields increased between early November and early December 2020, reflecting the onset of the second wave of COVID-19 infections globally and a repeat of lockdown restrictions as well as the downgrade of South Africa’s sovereign credit rating further below investment grade by two international rating agencies. The increase in domestic bond yields was then interrupted by a decrease up to early February 2021, as non-resident demand for domestic bonds firmed and as the exchange value of the rand appreciated along with continued subdued consumer price inflation. Subsequently, bond yields increased up to mid-March 2021 along with renewed depreciation in the exchange value of the rand.

Growth in the broadly defined money supply (M3) remained fairly elevated but moderated somewhat from mid-2020 as the deposit growth of financial companies decelerated sharply. Depositors continued to favour more liquid cash and short-term deposits over longer-term deposits, given the low interest rate environment and the continued uncertainty around the COVID-19 pandemic. Growth in total loans and advances extended by monetary institutions to the domestic private sector decelerated notably throughout 2020, indicative of the disruptive impact of COVID-19 on economic activity.

Private sector banks’ actual liquidity requirement declined from a daily average of R41.1 billion in the third quarter of 2020 to R25.6 billion in the fourth quarter, reflecting a considerable decline in private sector banks’ demand for funding at the weekly main refinancing auctions amid surplus liquidity. Despite the discontinuation of longer-term refinancing operations in December 2020, the weekly main refinancing auctions remained under-subscribed. The daily supplementary repurchase auction was discontinued early in February 2021 while the South African Reserve Bank (SARB) also increased the weekly refinancing amount back to its customary level of R56.0 billion. With these changes, the SARB has now ended the COVID-19-related liquidity measures implemented since March 2020, with the exception of government bond purchases.

Domestic short-term money market rates, which declined substantially throughout 2020 until November, subsequently increased somewhat following South Africa’s sovereign credit rating downgrade further into sub-investment status by two international credit rating agencies at the time of global risk aversion amid the resurgence in COVID-19 infections. Most of these rates then continued higher in February and March 2021 as the SARB discontinued the COVID-19-related liquidity measures implemented a year earlier.

The preliminary non-financial public sector net borrowing requirement almost doubled to R445 billion in the first nine months of fiscal 2020/21 compared with the same period of the previous fiscal year. This reflected the significantly larger cash deficits of national government and the social security funds. Although national government revenue contracted by 10.1% year on year over this period, the pace of contraction across most of the tax categories has been much slower than projected in the 2020 Medium Term Budget Policy Statement (2020 MTBPS). The higher net borrowing requirement of national government was financed primarily in the local financial markets through the net issuance of domestic long-term government bonds, which resulted in a sharp rise in national government’s gross loan debt to R3 833 billion as at 31 December 2020 – 21.5% more than a year earlier. As a percentage of GDP, gross loan debt increased from 62.2% to 77.1% over the same period.

Forthcoming revision of South Africa’s national accounts and balance of payments statistics

The June 2021 edition of the Quarterly Bulletin will reflect the outcome of the latest benchmarking and rebasing to 2015 as the base year of national accounts statistics by Statistics South Africa (Stats SA), in which the SARB has also participated.

This comprehensive statistical revision will, among other things, include new estimates of the GDP and other national accounts aggregates, as well as the balance on the current account of the balance of payments. The revision will also provide for conceptual, methodological, classification and source data changes. This follows the previous such revision published in the December 2014 edition of the Quarterly Bulletin.

The envisaged changes reflect continuous endeavours to improve the quality of official statistics, based on international best practice.