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%.
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.