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September 20, 2020
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South Africa's Economy Shrinks 51% as Lockdown Restrictions Hurt Businesses

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People queue for food in Johannesburg, South Africa, on Sept. 3. A national survey said 47% of households ran out of money to buy food in April.

Photo: kim ludbrook/Shutterstock

JOHANNESBURG—South Africa’s economy shrank by an annualized 51% in the second quarter, its worst quarterly decline in at least a century and one of the steepest contractions recorded by any major economy during the coronavirus pandemic.

Africa’s most developed economy imposed a strict lockdown in late March, closing most businesses and banning the sale of alcohol and cigarettes along with other items not considered essential.

The restrictions managed to slow the spread of the coronavirus in South Africa, but infections increased after large parts of the economy were allowed to reopen in July. As of Monday night, the country of 60 million had recorded 639,362 coronavirus cases—the seventh-highest caseload globally—and 15,004 deaths.

Annualized growth figures extrapolate what would happen over a full year if the economy grew or contracted at the same rate as in the quarter being measured. Compared with the second quarter last year, South Africa’s gross domestic product plummeted by 17.6%, the statistics agency said—a slightly better performance than the 23.8% contraction recorded by its emerging-market peer India, but worse than the 11% GDP decrease seen in Brazil, and Turkey’s 9.5% contraction.

In the same period, U.S. and German output declined by around 10%, while Italy lost 12%, and Spain 19%.

Tuesday’s release by Statistics South Africa illustrated the devastating effect of lockdown on different sectors of the economy: The manufacturing industry contracted by an annualized 74.9%; output from the important mining sector plummeted by 73.1%; transport, storage and communications decreased by 67.9% and the trade, catering and accommodation industry shrank by 67.6%.

The agriculture, forestry and fishing sector was the only positive contributor, increasing by 15.1% between April and June.

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A bar owner in Cape Town, South Africa, Aug. 24, waits for customers.

Photo: mike hutchings/Reuters

South Africa entered the pandemic with a weak economy, which has now been shrinking for a full year. Economists said Tuesday that the government would have to reassess its 2020-2021 budget following the poor second-quarter data. The finance ministry has forecast a 7.2% contraction for 2020 that would push the country’s debt to 81.8% of GDP by the time the current fiscal year ends in March, from 63.5% a year earlier.

“South Africa was in a crisis before the coronavirus and there was further decline anticipated even outside of the virus, which has now become the worst crisis this country has ever faced,” said Duma Gqubule, an economist and director of the Center for Economic Development and Transformation in Johannesburg.

The government of President Cyril Ramaphosa in April announced a 500 billion rand ($29.84 billion) stimulus package—including a paycheck protection program and a special social grant for the neediest South Africans—to help cushion the blow of the lockdown. In July, the country received a $4.3 billion emergency loan from the International Monetary Fund.

Coronavirus is spreading rapidly in many African countries that have fewer weapons to fight it than developed nations. WSJ’s Joe Parkinson explains Africa’s unique vulnerabilities to the virus. Photo: AP (Originally Published March 30, 2020)

The statistics agency hasn’t released unemployment data for the second quarter, but it is likely that joblessness has increased significantly from the first-quarter’s 30.1% unemployment rate.

One nationally representative survey found that 27% of workers lost their income in April, while 47% of households ran out of money to buy food.

Sindiswa Mbonambi, a beauty-salon owner in Johannesburg, said she had to let go all six of her staff and moved in with friends after the lockdown forced her to close down for two months. The single mother said she remembers going to the store and not having enough cash to buy a pack of noodles. “I didn’t even have 22 rand ($1.30),” she said.

Since July, restrictions on economic activity have eased, but many businesses are struggling to rebuild. Ms. Mbonambi said her application for paycheck support from the government was rejected, and without staff or premises she now makes house calls for existing clients.

“People would rather buy electricity than get a massage,” she said.

Corrections & Amplifications
Compared with the second quarter last year, South Africa’s gross domestic product plummeted by 17.6%. An earlier version of this article incorrectly said it fell by 176%. (Corrected on Sept. 8, 2020)

Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com

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