Growth in the formal non-agricultural nominal remuneration per worker was restrained by the recessionary conditions in the first quarter of 2020, with remuneration growth slowing in both the public and the private sector. Year-on-year growth in nominal unit labour cost in the formal non-agricultural sector moderated to 4.5% in the first quarter of 2020, while labour productivity continued to contract.

Both headline producer and consumer price inflation moderated to historical lows in May 2020 in the wake of the COVID-19 pandemic, mostly due to a significant decrease in fuel prices as the shutdown of economic activity in most economies supressed the demand for crude oil. The lockdown restrictions aimed at containing the spread of COVID-19 required methodological changes to the compilation of the consumer price index (CPI), which introduced some temporary downward statistical bias. Headline CPI inflation then accelerated from a 16-year low of 2.1% in May 2020 to 3.2% in July, as fuel prices decreased at a slower year-on-year rate and as the extent of price imputations by Stats SA diminished. Underlying inflationary pressures receded further during the first half of 2020, reflective of muted price pressures amid the domestic recessionary conditions.

World trade volumes decreased notably further in the second quarter of 2020, reflecting the sharp contraction in output in many countries following production stoppages and with ports operating at reduced capacity. The adverse effects of this were also visible in South Africa’s trade surplus, which more than halved from the first to the second quarter of 2020, as the value of net gold and merchandise exports contracted much more than merchandise imports. Mining and manufacturing exports contracted sharply in the second quarter of 2020 while agricultural exports increased, supported by citrus exports in particular. The value of merchandise imports contracted for a fourth consecutive quarter as most of the mining and manufacturing subcategories declined. The value of crude oil imports decreased sharply due to the marked decline in the average realised rand price per barrel and, to a lesser extent, lower volumes. South Africa’s terms of trade improved further to a record high in the second quarter of 2020 as the rand price of exports increased while that of imports decreased.

The net flow of capital on South Africa’s financial account of the balance of payments reverted from an inflow of R16.6 billion in the first quarter of 2020 to an outflow of R10.3 billion in the second quarter. On a net basis, direct investment, financial derivatives and reserve assets recorded inflows during the second quarter, while portfolio and other investment recorded outflows. Portfolio investment flows largely reflected non-resident net sales of South African debt securities, as well as the redemption of international bonds by national government. This was partly countered by South African residents’ disposal of foreign portfolio assets. Despite a further decrease in South Africa’s international reserve assets in the second quarter of 2020, the level of import cover rose to a new all-time high of 8.0 months at the end of June, reflecting the continued decline in imports.

South Africa’s positive net international investment position (IIP) increased more than threefold from the end of December 2019 to the end of March 2020, reflecting a notable increase in the market value of foreign assets and a further decline in foreign liabilities. The decrease in the nominal effective exchange rate (NEER) of the rand of 19.3% over this period affected foreign assets more than foreign liabilities, while divergent movements in some asset prices also contributed to the significant increase in the positive net IIP.

The NEER increased by 2.7% in the second quarter of 2020 following the notable decrease in the first quarter, as investor sentiment improved amid the gradual lifting of lockdown restrictions and further monetary policy easing in several countries, including South Africa. The NEER increased marginally further up to mid-September as domestic developments, such as the resumption of electricity load-shedding and the larger-than-expected contraction in real GDP in the second quarter of 2020, were offset by the continued appreciation of the rand against the United States (US) dollar.

The movements in South African government bond yields thus far in 2020 have reflected uncertainty as to the economic impact of the COVID-19 pandemic and the concomitant changes in South Africa’s sovereign and currency risk premiums, as well as net sales of bonds by non-residents and fluctuations in the exchange value of the rand. Bond yields also reflected concerns about the sustainability of South Africa’s public finances against the backdrop of an increase in government debt, as projected in the June 2020 Supplementary Budget. The decline in domestic short-term money market interest rates in the first half of 2020 continued after the further reduction in the repurchase (repo) rate in July.

Growth in the broadly defined money supply (M3) accelerated further in the second quarter of 2020 as both financial and non-financial companies as well as households showed a preference for bank deposits amid uncertainty about the impact of the national lockdown on economic activity and financial markets. By contrast, growth in total loans and advances extended by monetary institutions to the domestic private sector continued to moderate in the second quarter of 2020 amid the sharp contraction in real GDP. The deceleration occurred despite substantial interest rate relief and a variety of measures aimed at easing liquidity conditions to alleviate the effects of the COVID-19 pandemic.

The preliminary non-financial public sector borrowing requirement of R160 billion in the first quarter of fiscal 2020/21 (April–June 2020) far exceeded the R62.9 billion recorded in the same period of the previous fiscal year. This mainly reflected the notably larger cash deficit of national government, attributable to revenue shortfalls and higher transfers to other levels of general government for COVID-19-related expenditure. The response to COVID-19 was also evident in the change from a social security fund cash surplus in the first quarter of fiscal 2019/20 to a sizeable deficit in the first quarter of fiscal 2020/21. The financing of national government’s borrowing requirement led to a significant year-on-year increase of 18.7% in gross loan debt to 69.4% of GDP as at 30 June 2020.