Economy may shrink by up to 4% due to coronavirus, warns SA Reserve Bank

accreditation

South Africa's economy may contract by between 2% and 4% this year as a result of the coronavirus pandemic, the SA Reserve Bank has said. 

In its latest Monetary Policy Review, the central bank said there was also limited scope for an economic rebound in 2021, with growth unlikely to exceed 1%. 

'Nightmarish'

Speaking on a webcast briefing on Monday afternoon, Reserve Bank Governor Lesetja Kganyago said forecasting had become "nightmarish" given the many moving parts at play.

In its earlier GDP projection in March, the bank said that economic growth was likely to decline by 0.2% this year. But this was before President Cyril Ramaphosa announced a 21-day nationwide lockdown to curtail the spread of the coronavirus so that South Africa's health infrastructure does not become overwhelmed. 

"South Africa was already in recession prior to the Covid-19 shock, and the situation has become more challenging since," it said.  

Job losses, insolvencies

The Reserve Bank projected that the 21-day shutdown could result in a 2.6% contraction of GDP from the production side of the economy. It also projected about 370 000 job losses and about 1 600 businesses going insolvent. 

"These numbers are uncertain and move around a lot," said Dr Chris Loewald, a member of the Monetary Policy Committee. The outcome also depends on how long it takes for various sectors to pick up after returning to service following the lockdown.

Loewald also commened that the economy's growth projections woul be revised as more data comes to the fore. The current projections on growth, employee numbers and business closures are based on extrapolations of what has happened historically as the economy responded to crises, he highlighted. A clearer view of the economic impact of lockdown will be known once data starts coming through, he emphasised. 

Overall the annual GDP for 2020 will depend on the rebounds that take place during the year and the speed at which the rebounds take place. The figure also depends on policy responses for example whether Treasury will commit more spending in line with its fiscal policy and how the private sector will respond, he explained. It is possible that the March forecast  of 0.2% will be revised even lower, he added.

On the bright sie however, Loewald said so far businesses appeared to be more proactive to their response to the Covid-19 crisis than businesses in other countries which appeared to be caught off guard. "Recovery depends on the ways businesses get back on stream safely," he said. 


We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
15.07
-0.7%
Rand - Pound
20.40
+0.4%
Rand - Euro
17.61
-0.7%
Rand - Aus dollar
10.91
-0.1%
Rand - Yen
0.14
-0.5%
Gold
1,738.79
-0.7%
Silver
22.48
-0.7%
Palladium
1,869.50
-5.0%
Platinum
968.50
-1.5%
Brent-ruolie
79.53
+1.8%
Top 40
57,462
-0.6%
All Share
63,784
-0.6%
Resource 10
56,880
-1.5%
Industrial 25
82,305
-0.7%
Financial 15
14,437
+1.3%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
What potential restrictions on unvaccinated South Africans may make the biggest difference to public health, the economy?
Please select an option Oops! Something went wrong, please try again later.
Results
Limited access to restaurants and bars
11% - 161 votes
Limited access to shopping centres
14% - 205 votes
Limited access to live events, including sport matches and festivals
27% - 387 votes
Workplace vaccine mandates
47% - 674 votes
Vote