SA economy could shrink by up to 17{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in 2020 despite stimulus, warns business alliance

South Africa’s GDP could shrink by between 10{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} and 16.7{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} this year despite stimulus efforts due to a sharp plunge in economic activity, according to Business for South Africa.

This plunge would be six to eleven times as severe as the economic contraction that followed the 2008 financial crisis, when SA’s GDP fell by 1.5{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}. The SA Reserve Bank, by contrast, expects SA’s economy to contract by a more modest 6.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} for 2020. 

In a media briefing on Wednesday, Martin Kingston, the head of the business alliance’s economic intervention working group, said B4SA models predict that between 1 million and 4 million formal and informal sector jobs are at risk as economic activity stalls due to the nationwide lockdown. 

Prior to the outbreak of Covid-19, SA had already slipped into a recession in the last quarter of 2019. Kingston said this recession was now likely to last far longer than first believed. “[…] the recession is going to be much deeper that we thought and is going to endure for much longer”. 

The country would be facing significant negative growth for an “extended  period time”, he said, adding that it would take SA three to five years to return to its level of economic activity prior to the start of the recession, a rating downgrade by Moody’s, and the impact of the coronavirus.

B4SA said it was vital for to SA to use “evidence-based policy making” to transition quickly through the various lockdown levels so that economic activity could start to reemerge. 

“Level 4 will have limited beneficial economic impact based on the current regulations,” the group said in a presentation. “A significant increase in economic activity will only occur at Level 2, particularly given inter-dependencies between sectors of the economy.”

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