SA economy on mend after Covid-19 assault, says FNB data expert. See charts!

How has Covid-19 really affected the SA economy? FNB data expert Dr Christoph Nieuwoudt explores the spread of Covid-19, the lockdown measures and the various other factors that have all contributed to the weakening of the SA economy – and how it seems to be on the up and up. – Jarryd Neves

Post Covid-19 economy –recovering, but unevenly

By Dr Christoph Nieuwoudt*

In the past months, several analysts have reflected on the social and economic impact of the Covid-19 pandemic, lockdown measures and related behavioural changes.  Limited insight has however been provided on the underlying economic trends and areas that have been impacted, and how these have recovered since lockdown.  We analyse the spread of the virus (infections) and the impact of policy (lockdown measures) and the resultant public reaction in terms of spending patterns as well as the impact on incomes.

Our starting point is to compare the spread of Covid-19, policy measures and economic impacts with a month-on-month comparison showing the following [Figure below]:

  • Consumer income in SA (baselined to income into FNB retail accounts in Feb), shows a dramatic plunge in nominal income in April (26% drop), improving towards June (13% down) and by August had largely normalised (~2.5% down).
  • Consumer spend in SA (baselined to FNB debit and credit card spend in Feb), shows an even more dramatic drop of 60% in April, improving to -22% in May, -15% in June and from there on fairly linear improvement reaching -3% by September, in line with income recovery.
  • Recorded new Covid-19 cases are dominated by the month of July (roughly half of all cases), amounting to ~0.6% of the SA population delivering positive test results in the month.

    SA economy
    Courtesy of FNB

A few high level observations can made – on an aggregate basis consumer income and spend are highly correlated and have both recovered to close to pre-C19 levels and secondly, at face value there doesn’t appear to be a relationship between consumer income & spend and the level of Covid-19 infection (we dig into this point in more detail later).

To understand consumer spend, a more detailed breakdown over time and by category is instructive [Figure below].  The immediate impact of lockdown is evident – firstly a spike in grocery and pharma spend just before L5 and thereafter (as intended) all other categories of spend drop to extremely low levels.  Fuel & tolls drop by 70% and the rest by ~90-100% during L5.  L4 provides immediate relief to general retail, apparel and automotive spend.  Fuel & toll spend recovers rapidly into L4 and more steadily thereafter (-14% by September).  Dining out & entertainment shows progressive recovery as each lockdown restriction is lifted (-27% by August, -13% by September), while Tourism is slowest, reaching -44% by September.  It is clear lockdown measures are very effective at rapidly curbing activity (and spend), with recovery lagging the lifting of restrictions in some cases.

SA economy
Courtesy of FNB

Another interesting perspective on spend is to look at impact by province [Figure below].  It shows how all provinces were impacted heavily during April (L5), but how the more rural provinces recovered rapidly and by June (L3) spend had virtually normalised.  This is true even for the Eastern Cape, although in that case the health outcome may not have been ideal. 

On economic (under) performance, Western Cape is the outlier, with the worst impact throughout and the slowest recovery.  A more detailed analysis (not shown here) attributes this to outsized spend dependence in dining out, tourism & travel – restoring these sectors to a more normal state being critical for recovery.  Gauteng and KZN were heavily impacted up to July, no doubt also due to the high levels of Covid 19 infection in these provinces and by August, as infections dropped, spend recovered rapidly.

SA economy
Courtesy of FNB

A breakdown of the delta in income by income grouping is very instructive [Figure below].  It shows that either ends of the income spectrum have been most impacted – the lowest income (Low) and highest income (Wealth) groups had the largest drop and remain most impacted (both more than 30% down in April and still 10 to 11% down by September).  Several reports have pointed out the huge impact on low income earners with the impact on the informally employed being severe.

  This data shows that at other end, the highest income bracket was also heavily impacted due to the prevalence of self-employed individuals that derive their income from the businesses they run.  Both owners and employees of SME businesses were heavily impacted with the impact generally being worse for smaller businesses than larger ones. 

Interestingly, middle income earners had recovered in aggregate by September.  It should be noted these numbers hide some nuances, e.g. the private sector drop was worse than shown, while public sector employee incomes did not show an impact.

Courtesy of FNB

Also note the graph shows aggregate (and average) incomes – from a number or volume of salary payments, we measured less of a drop in number of persons paid in April (~13% fewer salaries paid), but also less of a recovery by September (showing 6% reduction in job numbers vs less than 3% reduction in nominal income).  This data roughly matches the reported 2m+ job losses in Q2, which our data indicates has reduced to ~1m now. 

Our data shows workers in catering and accommodation remain especially heavily impacted – in line with spend data confirming that Tourism and Dining Out & Entertainment spend remains of concern.  We note that both income and spend data may not be fully representative of the lowest income earners, nor does this analysis include (inward) International spend.

Interestingly, we saw large growth in eWallet, but (some of) which may also be due to convenience and safety reasons as opposed to growth in lower income customer receipts.  Also note this analysis does not include social grants and UIF payments (TERS etc.), nor debit order payments and related relief granted by banks etc., all of which would have softened the impact on the consumer.

Read also: 

To conclude, we note that policy measures designed to delay the spreading of Covid-19 had a huge impact on economic activity, while infection rates were of secondary economic relevance.  This observation is perhaps obvious, but important nevertheless as it helps provide guidance on how to tackle a second wave, which we assume is almost inevitable in some form.  Given South Africa operated under L3 in the middle of the peak of infections and proceeded to L2 with infections still elevated and importantly that health outcomes in South Africa were generally deemed to be satisfactory (especially relative to US/Europe, but also South America, India, etc.), it indicates that economic restrictions per se should be avoided as far as possible. 

Rather, (non economic) health and related behavioural interventions including mask wearing, social distancing  (limits on gathering etc.) and curfews should be emphasised, followed by limiting the highest behavioural risk activities (clubs, bars) with gyms and restaurants only impacted if deemed absolutely necessary.  Gaining a level of clarity on the proposed approach is important for business and consumer confidence, investment and job creation.

  • Dr Christoph Nieuwoudt is an FNB Executive, responsible for Data and Analytics. 
(Visited 716 times, 3 visits today)