July Production Statistics: An Indication Of A V-Shaped Recovery?

Statistics South Africa publishes monthly production statistics for mining, manufacturing, electricity distributed, the five components of trade, catering and accommodation and two components of trade, storage and communication. The July 2020 estimates have now been published. Gross domestic product statistics have been published for the first two quarters of 2020. What do these estimates reveal about economic recovery since the Level 5 lock down?

Method

The table in the Annexure presents monthly estimates of value added in the sectors of the economy covered by monthly production statistics, reconciled to GDP estimates in the first and second quarters. It also presents quarterly estimates of value added in the sectors of the economy not covered by monthly production statistics. Notes on the method of estimation are contained in the Annexure. All calculations are in current prices.

Results

Figures 1 and 2 display the index of value added by covered sector between January and July 2020. In all cases, the index is set to 100 in February, the last full month before the lock down. Table 1 sets out the values of the index in July.

Table 1

Sector

July index

Mining

107.4

Manufacturing

96.2

Electricity

111.6

Trade: Food, beverages and tourism

32.2

Trade: Wholesale, retail, motor

99.0

Transport

93.7

 

280920-1.png

280920-2.png

Table 1 and Figures 1 and 2 show more than full recovery by July to February production in mining and electricity, more than 95% recovery in manufacturing, and wholesale, retail and the motor trade, and 94% in the sector of transport, storage and communication covered by monthly production statistics. The recovery in food, beverages and tourism is far from complete. The lag in this sector is predominantly supply constrained. This is grim for the sector, but value added in it is small, at only 7% of value added in the trade, catering and accommodation sector as a whole in February.

Value added in the sectors covered by monthly production statistics is estimated at 39.0% in the first quarter and 34.3% in the second quarter. What can we say about the uncovered sectors, for which only quarterly value added statistics exist? Table 2 sets out value added in the second quarter as a percentage of value added in the first quarter.

Table 2

Sector

Value added
Q2/Q1

Agriculture

140.8%

Gas and water

94.5%

Construction

69.9%

Rest of transport, storage and communication

77.4%

Finance

92.1%

Government

99.9%

Personal services

91.7%

Covered sectors

76.4%

Note that the dips in most of the uncovered sectors in the second quarter were much lower than in the covered sectors, with the exceptions of construction and the uncovered part of transport, storage and communication. In both of these sectors, some recovery can be expected in July.

Policy implications

Table 3 sets out the dates by which third quarter data are expected, as well as dates for the October Medium Term Budget Policy Statement and the next meeting of the Monetary Policy Committee meeting.

Table 3

Event Date
Complete set of August monthly production statistics 19 October
Medium Term Budget Policy Statement Late October
Monetary Policy Committee 19 November
Complete set of September monthly production statistics 23 November
Third quarter Gross Domestic Product statistics 8 December
Complete set of September monthly production statistics 10 December

A complete account of the third quarter plus October monthly production statistics will be available just before mid-December. An update to this analysis will be possible then, with a view to determining whether there will be further recovery, a consolidation of the currently observed recovery, or a reverse. A reverse is likely if and when a second wave of the epidemic emerges. This is entirely possible, as the situation in the top twenty countries (excluding the United States) by number of recorded infections indicates (shown in Table 4).

Table 4

Status of epidemic

Countries

First wave rising or near peak

India, Argentina, Italy

Substantial decline following first wave peak

Brazil, Colombia, Mexico, South Africa, Chile, Bangladesh, Iraq, Pakistan, Philippines

Second wave approximately as strong as first wave

Russia, Peru, Spain, France, Iran, United Kingdom

Second wave smaller than first wave

Turkey, Italy

In light of the currently available information, the following policy settings may be appropriate:

  1. Maintain the current level of stimulus, but do not increase it. Monetary policy is expansionary and fiscal policy is highly expansionary, with a primary deficit of 9.7% expected in the 2020/21 financial year.
  2. Maintain the policy of providing liquidity in the government bond market, but do not embark on quantitative easing.
  3. Do not increase taxes significantly before at least the middle of 2021/22 financial year, i.e. while a resurge of the epidemic is possible. With luck, vaccination may become widely available in the second half of 2021.
  4. To provide for the possibility of a second wave of the epidemic, establish a contingency fund to provide again for measures for income support, support to vulnerable households at the current rate, and wage protection at current rates. Continuation of the credit guarantee scheme and support for small and medium enterprises and the informal sector can be continued within the parameters already set.
  5. Defer consideration of grants to the 18-59 age group until the second half of the 2021/22 financial year. There are many options, such as restriction to a particular age range and various conditions for grants, and these should serve carefully defined objectives. Any programme should be fiscally neutral and compatible with stabilization of the debt to GDP ratio by 2023/24 or 2024/25.

In an uncertain environment, policy has to be developed in the light of emerging data, so the suggested settings are provisional and subject to revision.

Charles Simkins
Head of Research
charles@hsf.org.za

Charles Collocott
Researcher
charles.c@hsf.org.za

Annexure

Table
Rand million
Current prices

                   

Sectors covered by monthly production series

Production 2020

Mining

Manufacturing

Electricity GWh

Food and beverages

Tourist accommodation

Motor trade

Wholesale trade

Retail trade

Transport part

 

Jan

51090

168088

18444

5823

2192

54522

172861

84902

13803

 

Feb

45142

189141

17491

5736

2262

54833

183401

87773

14078

 

Mar

51326

190791

17976

4613

1312

46619

185731

92421

14112

 

Apr

31682

93576

14357

255

40

8790

101674

45879

8226

 

May

40832

139770

17230

756

34

28349

145181

80813

11304

 

Jun

42279

165204

18649

2301

105

47392

171324

82801

12268

 

Jul

48488

181917

19520

2755

187

51839

191024

80735

13188

 
                     

Value added 2020

Mining

Manufacturing

Electricity

Trade

Transport part

Total

       

Jan

28172

43812

6927

54000

10118

143028

       

Feb

24892

49299

6569

56269

10319

147348

       

Mar

28302

49729

6751

55516

10344

150642

       

Apr

17703

24950

5467

27389

6030

81540

       

May

22816

37267

6561

44372

8286

119302

       

Jun

23624

44048

7101

52143

8992

135910

       

Jul

27094

48505

7433

55757

9667

148456

       
                     
Value added 2020

 

Uncovered total

Total

Total

 

Covered sectors

Agriculture

Gas and water

Construction

Transport etc. Rest

Finance

Government

Personal services

current prices

2010 prices

Q1

441018

28890

4111

40630

73443

271902

200352

70940

1131285

694032

Q2

336751

40675

3884

28408

56872

250509

200228

65084

982410

599104


Q2/Q1

76.4%

140.8%

94.5%

69.9%

77.4%

92.1%

99.9%

91.7%

86.8%

86.3%

Notes

  1. Mining and Manufacturing: Value added proportional to production, with monthly constant of proportionality adjusted to quarterly value added.
  2. Electricity: Value added proportional to electricity distributed, with monthly constant of proportionality adjusted to quarterly value added.
  3. Trade: Composed of five components: food and beverages, tourist accommodation, motor trade, wholesale trade and retail trade. First round monthly value added estimated by production less purchases in each case and five components of value added aggregated. Monthly value added further adjusted to quarterly value added.
  4. Part of transport: Composed of two components: freight transport and passenger transport. Value added estimated by production less purchases in both cases. Passenger transportation excludes minibus taxis, metropolitan buses and rental of private cars/buses without drivers. Freight transportation excludes renting of trucks without drivers and in-house transportation.