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.