The -51% GDP headline is misleading
Whoever writes the Stats SA GDP report wasn’t messing around this week. Reminiscent of Finance Minister Tito Mboweni’s rather colourful Twitter feed, the report opened with the following line:
“The punch in the gut was severe.”
When a governmental statistics agency writes with such emotive language, you know things are rough.
The report immediately goes on to note that “perhaps the second quarter of 2020 will become known as the pandemic quarter” – this is something I cannot agree with. It should forever be known as the Ebrahim Patel quarter, in honour of the man who single-handedly destroyed consumer spending with a raft of nonsensical rules for which products could and could not be sold.
The burn of his draconian hand will be felt for a long time to come. Trade was down a spectacular -67.6% and manufacturing was even worse, with a -75.9% decline (both on an annualised basis)
Overall, GDP shrank -51% in Q2 on an annualised basis. However, this can completely mislead you into believing our economy is half the size it used to be.
What is an annualised basis?
This is the most important thing you need to learn about today’s Stats SA release.
An annualised basis assumes that the quarter-on-quarter growth rate occurs four times in succession. This is still complicated, I know. The simple explanation is that the annualised number roughly assumes that the Q2 lockdown lasts a whole year.
The media went crazy about the -51% drop today but that isn’t the right number in this context. It just makes for a sensational headline.
The critical number is -16% which is the drop from Q1 to Q2. If the same drop happened in the next 3 quarters, the drop over 12 rolling months would be -51%.
It’s borderline useless to quote -51% in this context. The economy is not actually half the size it used to be.
How does this compare to 2009?
Remember when bankers broke the world? The annualised GDP contraction was only -6.1% at its worst. Lockdown was 8x worse than the Global Financial Crisis and is the worst quarterly contraction on record (with SARB data going back as far as 1960).
Green shoots. Literally.
South Africa won’t win any awards for appreciating its farmers, who must constantly dodge the threat of violent crime, drought, lack of electricity and even land expropriation. Nevertheless, this plucky bunch get their John Deere tractors going every morning and managed to grow 15.1%.
Mrs Ghost enjoys a bit of Boer Soek ‘n Vrou on TV when nobody is looking. I’ve let her know that the Boere should be paying for every date with that performance against their name. It’s a terrific green shoot growing out of a basket of economic manure.
Household spending, or lack thereof
Household spending took a -49.8% nosedive on a seasonally adjusted and annualised basis. Of this -49.8%, -6.9% was contributed by the ban on alcohol and tobacco and -8.0% was contributed by the ban on clothing and footwear.
Both of these results, in my opinion, could’ve been far less severe had the government applied any degree of logic.
A special mention for baking
Stats SA must be commended for trying to find the good news stories. I suspect that no country GDP report in history has given a nod to the fine art of baking, but Stats SA noted that “the baking craze that gripped the country during the lockdown increased the demand for home cooking products” – you know an economy is in the toilet when baking products are statistically significant.
Perhaps the next Stats SA report will give a nod to Mboweni’s roast chicken habits on Twitter. At least he’s trying to drive consumer spending, which is more than I can say for the rest of government.
Q3 is nearly finished already, but at least things are starting to bounce back. If nothing else, South Africans are a resilient bunch with a sense of humour. We need it.