t
he global impact of the coronavirus (Covid-19) has quashed
the chances of a recovery in South Africa’s economy this
year, as Chinese demand for the country’s exports weakens,
the supply of key imports is disrupted, and both leisure and
business travel take a severe knock worldwide.
Economists have slashed their growth estimates for 2020, and
Moody’s Investors Service cut its forecast for SA to 0.4% from 0.7%- just a notch above last year’s feeble increase of 0.2%, which was
the lowest since the global financial crisis a decade ago.
The disruption to global markets, coupled with a plunge in oil
prices, have already knocked the rand to its weakest level in five
years, and could herald the start of a recession
in several countries – including the US, where
the longest expansion in the world’s biggest
economy is now expected to end.
The Organisation for Economic Cooperation
and Development (OECD), which groups
the world’s main industrialised countries, has
warned that global growth could drop to 1.5%
this year, half the rate it projected before the
virus outbreak in China three months ago.
Analysts say the consequences of the anticipated sharp
slowdown in the Chinese economy shows how vulnerable globally
integrated companies and their supply chains have become.
SA is particularly exposed as China has been its main trade
partner for a decade, with the country taking most mineral
exports and supplying most of its main imports, particularly
consumer electronics.
“The ultimate extent of the Covid-19 epidemic remains unclear.
SA industries are already feeling the impact, and there is a risk
that the consequences could worsen significantly,” SA’s Trade &
Industrial Policy Strategies said in a research note on 3 March.
“If the downturn in China persists or deepens, SA’s mining
industry in particular will suffer significant losses, with an impact on
workers and communities as well as companies. Smaller industries
will also suffer, something already occurring in fisheries.”
China appears to have contained the virus through draconian
measures involving the strict quarantine of millions of people. But
the illness has spread to more than 100 other countries, which will
not be able to impose such extensive control on their populations.
But people are postponing their travel plans, sporting events
have banned spectators and large conferences have been
cancelled. The International Air Transport Association (IATA) said
on 5 March that global revenue losses for passenger business
alone could amount to $113bn in 2020, and urged governments to
provide relief on taxes and charges for the airline industry.
This is a threat to the business rescue plan for SA Airways
(SAA), although its practitioners say that there has been “no
material impact” on bookings yet. Flybe, Europe’s largest regional
airline, has collapsed into administration after a government rescue
bid fell apart due to the impact of the coronavirus.
“Global airlines are coming under extreme stress from cancelled
and no-show bookings as well as future bookings being cancelled,”
says Intellidex analyst Peter Attard Montalto. “This is likely to have
a severe impact on SAA’s existing and even profitable routes. It
accelerates the need for additional cash from financial state-owned
enterprises and government.”
Attard Montalto has cut his growth forecast for SA this year to
0.1%, mainly on downward revisions to global growth estimates
from both the OECD and the International Monetary Fund, after
also taking account of continued power outages
and the recession in the second half of 2019.
Jacques Nel, head of Africa Macro at NKC
Africa Economics, has lowered his forecast for
2020 to 0.2% – unchanged from last year. The
announcement of SA’s first coronavirus cases
“presents another potential knock to growth” if
businesses, restaurants and other retail outlets
start to close, he says.
PwC economist Lullu Krugel says her worst-
case scenario points to a recession, with the economy shrinking
by 0.5%. “We are expecting virtually no growth this year, and a
contraction if things go wrong,” she says.
Although the fatality rate of the coronavirus is not as high as in
previous epidemics, the impact is greater as China now accounts for
about 17% of global GDP, compared with 9% in 2009, she says.
SA industries which would be hardest hit include mobile
operators, automotive manufacturers and hospitality and
retail establishments, she adds. Tourism would also suffer with
a potential loss of R200m in spending by Chinese visitors,
suggesting that around 1 000 jobs in the sector could be on the
line (see cover story on p.34).
A silver lining to the cloud is the outlook for interest rates – after
the US Federal Reserve cut borrowing costs in an emergency move
on 4 March, rate cuts followed in Canada, Asia, and the Middle East.
SA’s Reserve Bank governor Lesetja Kganyago has indicated
that the central bank is also likely to take the same step, and
analysts expect two more cuts amounting to 0.5 percentage
points this year.
Another bonus is that a historic plunge in oil prices should
help to alleviate the effects of any spike in inflation caused by
the rand’s plunge to a five-year low against the dollar on 9 March
(see story on p.13). ■
[email protected]
Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent
for Reuters news agency after working in the Middle East, the UK and Sweden, covering
topics ranging from war to oil, as well as politics and economics. She joined Business Day as
economics editor in 2007 and left in 2014 to write on a wider range of subjects for several
publications in SA and in the UK.@finweek finweek finweekmagazine finweek^ 19 March 2020^39in depth economy
By Mariam IsaSA’s GDP growth outlook dims as
coronavirus spreads
Economists are not optimistic about the country’s growth, but the central bank may provide some relief.
“We are expecting
virtually no growth this
year, and a contraction
if things go wrong.”