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‘South Africa looks set for a very cold economic winter,’ says Absa Senior Economist

Following the recent Moody’s downgrade to sub-investment grade and the rapid spread of COVID-19, South Africa is set for a “very cold economic winter”, writes Absa senior economist Peter Worthington.

South Africa was already in recession when COVID-19 hit our shores, and Moody’s credit rating downgrade to sub-investment grade was likely even before the lockdown, due to South Africa’s stalled growth momentum, ballooning fiscal deficits and slow progress with essential structural reforms,” he says.

The Johannesburg-based bank, formerly Barclays Africa, forecast that GDP in South Africa would contract in the second quarter by 23.5% quarter on quarter after seasonally adjusting and annualising the data, with particularly hard knocks for mining, manufacturing, and various service industries supporting tourism, which has now come to a dead stop.

“At this stage, no one knows when the pandemic will be brought under control, nor what the multiplier effects of different negative economic shocks will bring.,” Worthington says. 

“Covid-19 is a health shock which has mutated into a complicated tangle of a demand shock, a supply shock and a financial shock, all coming together at a time when South Africa was poorly fortified economically to deal with it”

Though a recent forecast predicted partial growth recovery in Q3 with an overall GDP contraction of about 3% in 2020, these projections are now optimistic, he says.

While South Africa’s central banks has implemented a range of measures to secure essential liquidity in South Africa’s financial markets, including a watershed decision to buy government bonds as needed to secure orderly financial markets, the monetary policy measures is unlikely to be enough to lift the economy out of the ICU. 

Read the guest post here: https://liveblog.africanbusinessmagazine.com/absa-senior-economist-peter-worthington-says-covid-19-and-moodys-downgrade-spell-even-tougher-times-ahead-for-south-africa/

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