BNP Paribas slashes SA's 2020 economic growth forecast to -4%
In a research note, BNP chief economist Jeff Schultz revised South Africa’s gross domestic product (GDP) down due to the impending economic impact of Covid-19 and the country- wide lockdown.
Schultz said BNP now expected a negative contraction in the South African economy, versus -1.2percent previously.
“We now expect the economy to contract 4percent in 2020, which is 2.5 percentage points lower than the growth contraction recorded in the wake of the 2008/2009 global financial crisis,” Schultz said.
“We see GDP picking up towards 2percent in 2021, though mainly on base effects and acknowledging the risk that the slowdown in global activity lasts longer, as it takes time for consumer behaviour to normalise and global value chains and companies to rebuild themselves.”
The South African entity of the French international banking group said the blockages on supply-chain would be exacerbated by the three-week lockdown imposed to contain the spread of Covid-19.
“Our expectation for a more substantial change in consumer behaviour and demand and a sharp deceleration in investment, which could last well beyond the end of the lockdown, has prompted us to further downgrade our GDP forecasts,” Schultz said
South Africa’s sovereign bonds have been declared junk and the country is bracing for significant capital flight by foreign investors.
Last week Moody’s downgraded the country's credit rating to sub-investment grade with a negative outlook on the deterioration in fiscal strength and weak growth.
The economy had last month entered a second technical recession in as many years following two consecutive quarters of negative growth in the second half of 2019.
These headwinds on the economy have forced the SA Reserve Bank (SARB) to start buying government bonds in the secondary market to help improve liquidity and market access.
Finance Minister Tito Mboweni has indicated that he may go to the International Monetary Fund (IMF) and the World Bank for funds as the economy struggles to withstand the global fallout from the Covid-19 pandemic.
On Wednesday, the SA Revenue Service also collected R66.2billion less revenue than it initially forecast last year, citing weak revenue from both personal and company income taxes.
Schultz said it would not be surprising to see the National Treasury and the SARB approach global lenders to try and access shorter maturity funding at more palatable interest rates.
“While historically we have argued that the ruling ANC would steer clear of approaching such organisations for fear of losing its sovereignty, these are extraordinary times,” Schultz said.
“If the Treasury is able to tap global lenders of last resort without having to opt for a full-fledged IMF programme, we think that there is a good chance policymakers will explore these avenues in the coming months.”