22 September 2020 – Traders will need to buckle down because the storm is only just starting. A vulnerable economic environment with weak domestic demand and a fluctuating rand has left the outlook for imports this year pretty bleak.
This comes as real economic activity deteriorated dramatically in the second quarter – largely due to the Covid-19 lockdown restrictions. According to Nedbank economist Isaac Matshego, real gross domestic product (GDP) contracted by 51% quarter-on-quarter, the fourth contraction in a row, and at least 4% more than expected.
“This was a brutal reminder that the impact of the lockdown was far more severe than anticipated,” he told Freight News. “This means consumer incomes will be under far more pressure and with that consumer demand will be subdued. We forecast far less buying of non-essential items in the next few months which in turn does not bode well for the import sector.”
Matshego said all sectors had contracted, except for agriculture which increased 15%. “The most notable declines were felt among the largest contributors to GDP, including mining (-73.1%), manufacturing (-74.9%), trade, catering and accommodation (- 67.6%), finance, real estate and business services (-28.9%) and transport, storage and communication (- 6 7. 9 %). Other sectors also struggled, including electricity, gas and water (-36.4%), construction (-76.6%), general government services (- 0.6%) and personal services (-32.5%).”Expenditure on GDP, said Matshego, had plummeted by 52.3% quarter-on-quarter in the second quarter due to already massive drops in household consumption expenditure and fixed capital formation as well as a sharp inventory rundown. “Consumption spending by general government also contracted, albeit at a slower rate.”
He said the outlook for imports was not positive at all and it was about being able to weather the storm. “Indications are pointing to the second quarter being the worst this year will experience and we are hopeful that we will start seeing a rebound in the third quarter as economic activity starts returning to normal.” The commitment made by the government and businesses to revive the local economy would also drive some growth and improve the import sector.
But, he warned, any growth would be from a very low base and traders were advised to prepare for what was proving to be an annus horribilis. “There is no getting away from it,” he said, “the next couple of months are not going to be much easier. This is not just about the domestic shock that we are dealing with, but international demand is subdued and locally we are simply going to have to adjust to these conditions.” According to Matshego, the resumption of load shedding, the public sector’s dismal fiscal position, and new challenges posed by Covid-19 health protocols would further undermine the pace of recovery. “The closing down of businesses in this environment will not be unexpected,” he said. Several firms have already announced that they will start to restructure operations by cutting operating costs and re-evaluating capital projects. Source (Freight News)