This is an important day in the South African economics calendar. At 11h30 this morning, Statistics South Africa will release GDP data for the second quarter of the year. Recent surveys of macro analysts’ forecasts of the second quarter GDP show that the South African economy could contract by around 47% q/q on a seasonally adjusted and annualised basis, largely reflecting the effects of lockdown restrictions put in place to slow the spread of the pandemic across various sectors.
The agricultural sector, however, will probably be the only shining star, in part because the sector was classified as essential and didn’t close down during the strict lockdown period, whose effect extended to the second quarter. Most importantly, because this is a boom year in agricultural output, across all subsectors (field crops, horticulture and livestock).
As I have recently highlighted in the previous blog entries, South Africa’s agriculture already had a solid start to the year with first-quarter gross value-added growing by 27.8% q/q on a seasonally adjusted and annualised basis. I noted then that the succeeding quarters would likely continue to show strong growth, a view I still maintain. But the second-quarter expansion could be somewhat milder than the first quarter, possibly at a range of 20-25% q/q on a seasonally-adjusted and annualised basis. The key drivers will remain somewhat the same as the previous quarter, which was an uptick in animal products, field crops and horticulture.
Within field crops, sugar was the main driver, while in horticulture, deciduous fruits were the primary drivers of the bounce in the first quarter. In the second quarter, however, summer grains and oilseeds will likely be the key drivers of growth as harvest processes and deliveries started gaining momentum during this quarter going into the third quarter, as the season was delayed due to dryness when the season began. Meanwhile, in the horticulture industry, citrus most likely dominated in the second quarter. I doubt that the animal products remained as robust in the second quarter as slaughtering activity softened when the country went into strict lockdown at the end of March. If anything, the animal products activity will probably recover in the third quarter, which is when restaurants started opening more widely.
With that being said, I am still quite optimistic about the performance of this sector in 2020, maintaining our forecast, at Agbiz, for the year to average at about 10% y/y (compared to a contraction of 6.9% y/y in 2019). Other institutions such as the Bureau for Food and Agricultural Policy (BFAP) are more optimistic than us, placing their agricultural growth forecast for the year at 13% y/y. This optimism is based on the bumper maize crop of 15.5 million tonnes (the second largest in history), surging export prices of major fruits (further supported by the weak exchange rate) and strong overall sales of agricultural produce in the first four months of the COVID-19 pandemic. This is, of course, with the exceptions of the wine and tobacco industries, where domestic trade has been restricted through various stages of the lockdown, and only permitted in August 2020.
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