As the extent of the economic devastation wreaked by the
coronavirus pandemic begins to emerge, economists have warned that the effects will
likely set the economy back by more than six years – a worse impact than was
seen in the wake of the 2008 global financial crisis.

This is according to an assessment by BNP Paribas, following
the recent measures aimed cushioning the weak economy against the virus,
including the Reserve Bank’s first rate cut at consecutive Monetary Policy
Committee meetings in nearly a decade. The repo rate now stands at 4.25%.

BNP Paribas says it has pencilled in additional rate cuts this
year – it expects at least 125 basis points – while urging policymakers to come
up with interventions to prevent “more dangerous socio-economic
implications”.

“We believe that the need for more coordinated monetary
and fiscal policy action is now more important than ever for South Africa,”
read its note.

“The National Treasury will have to re-prioritise state
funds in the coming weeks, we believe, to include more funding directed at
social welfare grants, and will likely increase local bond issuance by even
more than our previously projected 35–40%.”

Treasury was this week expected to present a set of
economic-rescue proposals in a special Cabinet meeting, giving an indication of
the country’s fiscal position, which has been further hammered by the overreliance
of state-owned entities on state funding. 

Given the country’s weak economic position, the coronavirus pandemic
is expected to deepen South Africa’s economic woes and push the economy into a
deep recession during 2020.

GDP takes knock

Finance Minister Tito Mboweni has already indicated that
Treasury will have to revise the national budget across the board to ensure
that the Department of Health has the resources necessary to respond to the
outbreak.

BNP Paribas revised South Africa’s 2020 GDP growth forecast
to −8.5%, from a previous estimate of −4.0%. The figures are based on
assumptions of a long lockdown and what it described as a “protracted
return to normal”.

Growth is expected to rise to +2.3% in 2021, compared to an
earlier prediction of +2.0%.

The forecasts contrast with the Reserve Bank’s figures,
which see GDP for 2021 ticking up by 2.2%, followed by a 2.7% increase in 2022.

The Covid-19 pandemic, which forced the shutdown of
manufacturing and other key sectors of the economy as the government attempted
to curb the spread of the virus, hit at a time when the economy was already in
a slump. GDP figures showed that SA was in recession in the second half of
2019, after the economy shrank by 1.4% in the fourth quarter and 0.8% in the
third.

Job losses as a result of the lockdown will worsen the
country’s already record unemployment rate, currently at 29%. Dawie Roodt,
chief economist at Efficient Group, describes this as one of the biggest
socio-economic challenges facing the economy.

Roodt support calls by BNP Paribas for government to come
out with bold decisions to cushion the economy from the meltdown as well as the
vulnerable sectors of the population.

“What is troubling about the current economic
challenges we are facing is that we don’t have enough space on the fiscal
account because of the previous mismanagement,” said Roodt, adding: “it’s
a crisis on top of a crisis.”

“The fiscal account is hugely constrained, and the only
way we could solve is stop is to seriously consider dealing with the elephant
in the room… that is, cutting spending on the wage bill,” he said.

He added that the current crisis is challenge for decisive
leadership, not ideological rhetoric, which has clouded policy for years.

The IMF, on the other hand, forecasts that measures to
contain the virus in South Africa are expected to compound existing structural
constraints, with growth expected to fall from 0.2% in 2019 to −5.8% in
2020. 

The lender has called the pandemic “an unprecedented
threat to development in Africa” with the region’s economy set to shrink
by 1.6% in 2020, and real per capita income is projected to fall by 3.9% on
average.

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