Covid-19 delivered a serious blow to the South African economy in 2020, particularly over the first and second quarters. Months of lockdown regulations combined with a variety of regulations and restrictions have left the economy flailing. According to the Budget Review which was recently released by the National Treasury, the South African GDP (Gross Domestic Product) is estimated to have contracted by 7.2% last year, which is the lowest growth in 90 years. Thankfully, a glimmer of hope comes in the form of the vaccine rollout which has recently begun across the country, and which is expected to help the struggling GDP to grow by about 3.3% in 2021. However, the outlook for economic recovery remains slow as we could be staring into the eyes of a third wave of the pandemic within the next few months. Let’s take a look at exactly how the pandemic has impacted the South African economy and what our recovery path looks like.
The growing impact
The South African economy was already struggling before we were hit by the first crippling wave of the Coronavirus, with years of slow growth and government debt at high levels. So, it’s no surprise that after being hit particularly hard by the Coronavirus—which has caused over 100,000 deaths so far—the GDP shrank by about 7.2% in 2020. The tourism and hospitality sectors have been hit the hardest and continue to suffer from the massive blow they were dealt by the virus-induced lockdown and travel restrictions. Thanks to the first wave of the pandemic the second quarter of 2020 was one of the worst quarters in years, with nearly every industry experiencing a huge drop in output, according to Stats SA. The construction industry came out of 2020 extremely battered and bruised and last year, Q2 was its 8th consecutive quarter of decline. Air travel, manufacturing, retail and finance and personal services all declined as well, leaving the agricultural industry as the only one which seemed to bob and weave its way through the first wave of the pandemic unscathed. In fact, agriculture managed to increase by 15.1% in Q2 of 2020, according to Stats SA, thanks to a rise in international demand for maize, citrus fruits and pecan nuts. Unemployment levels have risen even higher and during Q2 of 2020, at the first peak and the strictest lockdown, 2.2 million jobs were lost, sending the unemployment rate to a staggering 30.8%. In April, the Rand reached its lowest point, landing at R19.35 to the Dollar, which was quite a fall from the year’s strong start at R14.05 to the Dollar. Thanks to international lenders, the government managed to provide the country with a R500 billion stimulus package in an attempt to claw its way back to economic recovery. Will the stimulus package be enough to keep the economy afloat? Time will tell. Meanwhile, those with an eye on the forex market ought to keep an eye on such key pair as USD/ZAR and EUR/ZAR.
The fight’s not over
While the economy may have received a devastating blow, all is not lost and there are some signs of life emerging. The demand for diesel has almost fully returned back to pre-pandemic levels, petrol is at 90-95% of what it was before, and according to Wayne Currie of FNB Wealth and Investments, this could indicate that agriculture is having a bigger impact on the economy. Another big sign of life for our battered economy is the increase in government tax revenue, which could result in a better outlook for the country’s budget deficit than was previously predicted. Employment levels are bouncing back quicker than expected. It was reported that in October 2020 employment levels were almost the same as the previous February—before the pandemic hit the hardest—however it’s still too early to gauge how well unemployment will bounce back thus far this year. According to the National Treasury, our economy is finally on the path to recovery, albeit a slower one. They released the following statement: “The economy has started to recover in response to improved global conditions and the easing of lockdown restrictions and in the months ahead, a mass vaccine rollout will support a full reopening of the economy.” The Treasury also went on to predict the country’s GDP growth over the next three years, saying, “GDP growth of 3.3% is projected for 2021, moderating to an average of 1.9% in 2022 and 2023.” The Treasury’s fiscal policy for the next 3 years will focus on continuing Covid-19 support, stabilising debt and decreasing the budget deficit, as well as making sure that the compositions of expenditure in the country is improved.
Stock trading statistics
In the beginning of March 2021, South African stocks rose by 0.9%, with banks moving in a positive direction and mining recovering from its earlier weakness. The benchmark FTSE/JSE Africa All Share Index had declined by 0.4% but then quickly rose by the same amount, once mining stocks began to recover. The Naspers Ltd index climbed 1.6% on the same day, and an index of bank stocks increased by 1.3% as well. For those with an eye on stock trading, there are plenty of signs of life in the financial markets, which could bode well for the South African economic recovery over 2021.
The bottom line
Times of economic uncertainty may cause the type of market volatility that can present both opportunities and risks for certain traders who invest in CFDs or Contracts for Difference. CFDs allow you to take advantage of price movements in both directions—increases as well as decreases—of numerous financial instruments including forex pairs like USD/ZAAR and EUR/ZAR, as well as market indices, shares of today’s top companies, commodities, ETFs, and cryptocurrencies, without the need to purchase the underlying asset. Essentially, CFDs allow you to trade on price volatility.
Before you begin stock trading as CFDs, your first step would be to find a broker that you can trust. Doing a review of reliable broker platforms in South Africa is a good place to start, as you can browse a variety of brokers and platforms to see what each offers. Simply look up review of reliable broker platforms and take your time sorting through the results.
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