Brace for record decline in GDP in the next few months - analysts

Amid warnings that the coronavirus pandemic will severely impact the global economy, South Africa has been warned to brace for a steep decline in GDP.

Official statistics show the economy slipped into a technical recession in the fourth quarter of 2019, as GDP dipped by 1.4% on the back of a 0.8% contraction in the third quarter.

Now, the economic impact of the coronavirus, compounded by the fallout from power outages, is likely to further damage growth prospects and delay recovery, analysts warn. 

Poor prospects

Economist Jameel Ahmad told Fin24 on Monday that a dip of between 4 to 5%, if not worse, was likely in the second quarter of 2020.

Ahmad made the prediction before President Cyril Ramaphosa on Monday evening announced a 21-day lockdown in a bid to stem the spread of the coronavirus.

"We will prioritise the lives and livelihoods of our people above all else, and will use all of the measures that are within our power to protect them from the economic consequences of this pandemic," said President Cyril Ramaphosa on Monday evening, as he announced a raft of 'quick and targeted' measures to buoy the economy. 

Ahmad said there is a need for "realism" when assessing the impact of the pandemic. "Despite all the falls in the market in the couple of weeks, things are still getting worse when it comes to the infections.

"This means the economic impact is going to be even further and wider than the warnings that the institutions have already provided," said Ahmad, who is the Global Head for Currency Strategy and Market Research at FXTM.

Ahmad said South Africa registered its weakest growth levels between 1980 and 1985, with contractions of close to -5% on an annual level.

"Unfortunately the news indicators are not good, with everything that is going on... We cannot rule out that the economy will contract at levels that would meet, if not surpass, the economic contractions between 1980 and 1985," he added.

While government scrambles to address the coronavirus economic fallout, all eyes will, this week, be on a ratings announcement by Moody's, which is expected on Friday.

A sub-investment grade rating would be a massive blow for the ailing economy, whose sovereign rating has already been junked by Fitch and Standard & Poor's.

Things getting worse

Economist Azar Jammine told Fin24 although the first quarter of the year had been poor from an economic point of view, the full impact of the virus on the economy would be felt in the second quarter. 

However, he added, improvement in agricultural output could counterbalance some of the negatives seen in the first quarter, giving room for minor improvement.

"I don't think we have seen the full effect of the coronavirus yet... the things that we are experiencing right now would likely manifest themselves in the economy in the second quarter," he said.

He said it was "quite possible" that positive quarter-on-quarter growth might be seen in the first quarter of the year, which would nullify the recession. However, he added, a contraction might return in Q2, which could drag on into the third segment.

"Another thing that is likely to impact Q2 is that the second quarter of last year was the only one where we had a significantly positive growth, so we will be comparing a very weak quarter against a strong quarter," he said.

Dawie Roodt, chief economist at the Efficient Group, meanwhile, has warned of a 6% contraction of SA's GDP in the second quarter of the year. Roodt made the prediction before Ramaphosa announce the lockdown. 

The Reserve Bank last week cut the interest rate by 1 percentage point, from 6.25% to 5.25%, in an attempt to cushion the blow dealt by the coronavirus to the economy. Its impact is yet to be seen.

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