There is simply no noticeable evidence that countries that opened up their economies faster recorded milder contractions
In the second quarter of 2007, just before the global financial crisis set in, SA’s real GDP was R2.6-trillion, aided by the commodity boom of the previous seven years, which added R597bn to the R2-trillion GDP from the end of 2001.
From the second quarter of 2007, through the recession inflicted by the global financial crisis to the subsequent infrastructure investment associated with the 2010 Soccer World Cup and the roughly R1-trillion debt accumulated post GFC, the economy grew by R524bn to the end of the first quarter of 2020.
That is 13 years of growth, which produced about R73bn less than the previous seven years of growth. Clearly, the post-global financial crisis period was a troubled time for the economy, which lends credence to the so-called nine wasted years. But that’s not the point.
The point is this, the contraction in the second quarter of 2020 takes real GDP back to R2.6-trillion, the level it was in the second quarter of 2007. Thirteen years of economic growth has been wiped out in one quarter as the economy contracted 51% on a quarter-on-quarter and annualised basis. A 51% contraction is a staggering number but it needs to be contextualised.
Some among us say it was wrong for Stats SA to report the 51% contraction because it is an annualised figure, which tries to capture what the full year’s economic growth would be if the economy were to perform the same way it did in the second quarter for all four quarters of the year. Put differently, it’s an annual equivalent if each of the four quarters’ economic performance were identical to the second quarter contraction of 16.4% (compared to the first quarter and unannualised).
The contraction in the first quarter of 2020 was just 1.8% annualised and nowhere close to the second quarter contraction. No-one currently expects the economy’s performance in the third quarter and fourth quarter of 2020 to be anywhere close to the second-quarter figure either. So, the annualised figure does not give a picture of what the year will be like.
That said, those among us that say reporting the 51% figure is misleading are very silly. Stats SA has always reported the annualised GDP figures as its headline numbers, so there is nothing out of the ordinary about how the figures have been reported this time. If this were so misleading, why have the folks raising this now with the 51% contraction kept quiet in all the GDP releases Stats SA has issued for the past two decades?
Statistical reporting is not done for convenience, it is done to give the actual picture, or the best estimate where computing actuals is impossible. There is also a process and conventions that become standard practice.
Another point is that annualising GDP figures that have been affected by a once-in-a-century pandemic are problematic. There have been challenges in statistical surveys, not just in SA but globally. Economic data will be subject to significant revisions, both historically and the forecasts that look ahead. Even in normal times GDP statistics get revised, so we should expect the same and perhaps bigger revisions as more information becomes available.
Some have expressed the view that the government’s lockdown restrictions were a huge mistake because they resulted in this deep contraction in the economy, citing a New York Post column. In effect they are saying the lockdown was unnecessary, and was the sole cause of the plunge in growth. They are partially correct in that the lockdown caused much of the decline in GDP. But they couldn’t be further than the truth in saying the lockdown was unnecessary.
Before the pandemic the economy contracted for three consecutive quarters. Yes, these were mild compared with the second quarter of 2020, but the economy was already sick with glaringly obvious conditions. Just as Covid-19 patients with pre-existing conditions were worst affected by the disease, so SA’s economy had a lot of pre-existing conditions, and it showed in the second quarter contraction. The president has admitted that mistakes in implementation happened. But that is true not just in SA but globally. This was to be expected, even though some could have been avoided.
Linked to the above points, let's deal with the view that SA’s lockdown was too hard and that’s why the contraction was this deep. This is not supported by the data. Oxford Economics has created a Covid-19 lockdown stringency index for all countries, which is available at Our World in Data. It provides a comparable view on the lockdown restrictions. If we look at 29 countries comprising 11 advanced economies and 18 emerging markets, the data does not support the view that countries that instituted the most stringent lockdowns experienced the deepest contractions.
At the end of June, SA had the sixth most stringent restrictions among the 29 countries, with an index level of 76.8. Brazil, Chile, Philippines, Colombia, Argentina and Peru — all emerging markets — had more stringent restrictions compared to SA, which recorded the deepest contraction of all in the second quarter. If the level of stringency was the sole determinant of the degree of contraction, the aforementioned countries would have recorded deeper contractions than SA.
Even when we look at the change in the level of stringency from the end of the first quarter to the end of the second, there is simply no noticeable evidence that countries that opened up their economies faster recorded milder contractions. Some, such as Sweden, Indonesia, Brazil, Chile and Colombia, actually increased their stringency but still recorded mild contractions.
The data therefore does not support the suggestion made by some among us that SA experienced the deepest contraction globally solely because we had a hard lockdown. There were clearly other factors at play — specifically those pre-existing conditions.