South Africa’s Gross Home Product has not halved as reported by a number of publications and commentators over the previous 24 hours.
Statistics South Africa (StatsSA) launched the eagerly awaited Gross Home Product (GDP) estimate for the second quarter of 2020 on Tuesday. In its personal summary report, and in quite a few press experiences, the next is claimed: “South Africa’s gross home product (GDP) decreased by 51% within the second quarter of 2020 owing to the affect of Covid-19 lockdown restrictions because the finish of March 2020.
Primarily based on this report, various publications and commentators reported that South Africa’s GDP has halved on account of Covid-19 (see this, for example).
So, let’s put some information on the desk earlier than moving into the technical points. We are able to safely say the next:
- Covid-19 and the related lockdown has had a devastating affect on the economic system and the restoration course of can be very robust.
- Whereas the affect throughout the globe has been uneven, South Africa just isn’t alone, and is one among many international locations the place the affect has been extreme.
- The actual quantity to give attention to is the autumn within the GDP between the primary quarter of 2020 and the second quarter of 2020. Our lockdown was introduced on 23 March and started on 26 March 2020 so, give or take a number of days, the primary quarter is pre-Covid-19, and the second quarter is post-Covid-19 and the lockdown interval. In fact, the impact of Covid-19 started a lot earlier, with folks altering journey plans, shortages of some private protecting tools (PPE) and so forth however, for simplicity, let’s ignore the results previous to the announcement of the lockdown.
- South Africa’s GDP within the second quarter, in comparison with the primary quarter, didn’t fall by 51%. It fell by 16.four%.
- Whereas it’s technically appropriate to say that, on an annualised, seasonally adjusted foundation, GDP within the second quarter fell by 51%, in our present context, this can be a extremely deceptive statistic. StatsSA ought to have revealed the report with the next well being warning: “Earlier than quoting this report, please take the time to know the idea of an annualised quarterly GDP estimate. Oh, and please do assume for a minute.”
So, how can we make sense of all of this?
In a traditional world, for many financial information, together with GDP information, we prefer to have the information annualised. That is primarily as a result of annualised information permits us to match information that’s collected over completely different intervals of time. That is clearly the case for GDP information.
StatsSA experiences our quarterly GDP information on an annualised foundation, because it did with the information launched on eight September 2020. In essence, the annualised information assumes that the quarterly pattern of GDP would develop or shrink as if that charge of change is sustained over a interval of 12 months. Since GDP progress compounds on itself, the calculation is a bit more advanced than multiplying by 4 (as a result of now we have 4 quarters). The info is then adjusted for seasonal patterns – therefore, the annualised seasonally adjusted GDP progress charge. Ordinarily, from one quarter to the subsequent, GDP information doesn’t fluctuate dramatically, so the annualised information is a helpful strategy, and we are able to examine GDP progress charges on this annualised trend.
Nevertheless, in situations the place the quarterly information might fluctuate in a dramatic trend, as has been the case with the Covid-19 and the lockdown, this calculation, to annualise the estimate, is extremely deceptive, as a result of it assumes that the financial results of a lockdown will proceed because it did for the second quarter, for 4 consecutive quarters. As Stuart Theobald has very usefully identified, the 51% fall is a results of compounding the quarterly 16.four% fall (in different phrases, -16.four x -16.four x -16.four x -16.four). We all know for sure that, whereas the third quarter information is not going to be excellent news, it is not going to be a fall of 16.four%, because the lockdown has eased. Furthermore, since we are going to now be calculating the change between quarter three and quarter two, our comparator is not going to be quarter one information, however quarter two information, which is decrease than quarter one information.
When you assume that is all tutorial, take into consideration what you’ll say if the quarter one and quarter two information have been inverted – that’s, if the economic system grew in the identical method, moderately than declined. The quarter on quarter progress charge can be about 20%, however the annualised progress charge can be over 100%! Appropriately, if this have been to happen and President Cyril Ramaphosa have been to say to be our financial messiah, we’d accuse him of manipulating the information. What is sweet for the goose should be good for the gander – the declare that South Africa’s economic system has declined by 51% is a misrepresentation of the information.
In fact, this isn’t in any strategy to recommend that we’re not in a parlous financial state. Our economic system has shrunk by 16.four% between March and June 2020 – that could be a huge fall in GDP. Covid-19 and the lockdown has had a devastating affect on our economic system. As a nation, over the interval, now we have misplaced R512-billion! It is going to take a few years to get well from this. However, anybody who tells you that our economic system has halved is deceptive the general public. The very best estimates now we have recommend that GDP for 2020, in comparison with 2019, will fall someplace between eight% (the SA Reserve Financial institution estimate) and 10.four% (Intellidex’s estimate). Definitely not 51%! DM/MC
Imraan Valodia is the Dean, College of Commerce, Regulation and Administration and Director of the Southern Centre for Inequality Research, College of the Witwatersrand.