SA economy could shrink by 6% in the next few months, economist warns

The South African economy will feel the impact of the coronavirus significantly because it was already dealing with its own internal crisis, including a "celling" on the rate at which it can grow because of electricity supply interruptions, Efficient Group chief economist Dawie Roodt said on Tuesday.

Speaking at a discussion hosted by business lobby Sakeliga, Roodt said because the local economy was already caught up in its own problems before the virus spread, GDP growth in the first quarter would likely disappoint.

Now that the country has declared a national state of disaster to try to contain the coronavirus - a declaration that instantly put the brakes on many industries in the tourism and hospitality sector - Roodt said the economy will probably be flat or below zero in the first quarter, as the real impact will begin to be felt towards the end of March.

Expect significant slowdown

"We will probably have three quarters of negative economic growth after the first quarter this year. The second quarter is when we are going to see the real impact of the crisis. I expect a significant slowdown in economic activity and a contraction in the second quarter, probably in the region of -5% or -6% or even higher," said Roodt.

He said for 2020 as a whole, depending on a number of variables, including how effective local authorities will be in dealing and containing the spread of the virus, the economy will likely contract by 1% to 3%.

Roodt said the reason behind his outlook was that the global economy was already limping before the virus hit. "The South African economy was experiencing crisis before the virus. It was in a recession…and there is also a growth ceiling in South Africa. We do not have enough electricity. That means economic growth is limited to about 1% or so," he said.

Piet le Roux, CEO of Sakeliga, said local businesses simply have to find a way to keep the economic wheel turning to try and limit the envisaged declines. "What we cannot afford is to have business harmed in the long run. So, it has to be business unusual. We have to find a way to stay open, while mitigating the risks of the spread of the disease," he said.

The financial markets outlook

Roodt said South Africa and its financial markets have got to the third stage of reacting to a global crisis. While in the first two phases the financial markets start to try to understand how a crisis might affect industries and countries, this third phase sees investors start reacting, which explained the bloodbath in the JSE late last week and again on Monday.

But Roodt said because of how cheap most of South African financial assets are, he expects the market to bounce back and still deliver approximately a 10% to 12% return in 2020.

"I’m actually quite bullish on some assets on the South African financial market, especially the bond market. The capital market has set wonderful opportunity even after a downgrade," said Roodt, adding that South African dividend yields are "very attractive".

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