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Historic decline in Q2 as lockdowns hurt

Real GDP plunged by a record 51% q-o-q (annualised) in 2020Q2. Compared with 2019Q2, real GDP declined by 17.2%, while the level of GDP was 8.7% lower in the first half of 2020 than in the corresponding period of 2019. The depth of SA’s Q2 decline ranks amongst the worst of the countries that have already reported. Pre-COVID vulnerabilities, a strict lockdown, the lack of fiscal space to aggressively support the loss of Income and administrative delays in providing income relief to furloughed (or retrenched) individuals help to explain the sharp decline.

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Sentiment in the civil construction sector, as measured by the FNB/BER Civil Confidence Index, increased to a still low level of 11 in 2020Q3, from 5 in 2020Q2. Underpinning the low confidence was continued pressure on activity, which, while improved compared to 2020Q2, is likely well below the level recorded in 2019Q3.

After a drop in July, the Absa PMI’s business activity index rose by 4.1 index points in August. Crucially, while the level of the business activity index is now well above pre-pandemic levels, this does not mean that the level of actual manufacturing activity is back to those levels. Given the magnitude of the drop recorded in April, it will take months of strong month-on-month growth to return to the level of activity recorded prior to the start of the nationwide lockdown in late March.

After falling from 18 to an all-time low of five in the second quarter, the RMB/BER BCI rebounded to 24 in the third quarter. Business confidence recovered in all the sectors making up the BCI. Given the close historical relationship between real GDP growth and the RMB/BER BCI, the third quarter survey results foreshadow an improvement in the third quarter relative to the second quarter.

The FNB/BER Consumer Confidence Index (CCI) increased from -33 to -23 in the third quarter. The partial recovery can be ascribed to increases in the household finances and time-to-buy durable goods sub-indices. The COVID-19 pandemic and related economic restrictions delivered a profound blow to consumers' willingness and ability to spend.