The Reserve Bank has cut its growth forecasts for South Africa, predicting the economy could shrink by as much as 4% in 2020 due to the coronavirus pandemic, the national 21-day lockdown and the recent downgrades by credit rating agencies.
The Bank says growth was unlikely to exceed 1% in 2021. In its bi-annual Monetary Policy Review the Reserve Banks says there is limited scope for a rebound and there are downside risks to the dire forecasts should the lockdown be extended.
To view the full Monetary Policy Review, click here https://t.co/h42y1unWFt. To view the Monetary Policy Forum presentation, click here https://t.co/Ydb7srDaRn. #AprilMPR #SARBMonetaryPolicyForum #TalkToTheSARB
— SA Reserve Bank (@SAReserveBank) April 6, 2020
The country has reported 1 655 coronavirus cases, the highest on the continent, with 11 deaths. The Rand has crashed to an all-time low of above R19 to the dollar while bond yields have spiked – fuelling fears of a financial and fiscal crisis.
Significant job losses and business failures are expected, with a partial rebound following the shutdown. #AprilMPR #SARBMonetaryPolicyForum #TalkToTheSARB pic.twitter.com/TB9u8zK40m
— SA Reserve Bank (@SAReserveBank) April 6, 2020
Rating agencies
Fitch rating agency followed on Moody’s steps and downgraded the country further into non-investment by one notch to BB from BB+ and maintained a negative outlook.
Both agencies are citing the lack of a clear path towards government debt stabilisation and increased pressure on government finances as a result of COVID-19.
All three major credit rating agencies now have South Africa at sub-investment grade ratings. The sovereign downgrade will further add to the prevailing financial market stress.
South Africa has now being excluded from the world government bond index, and this is expected to lead to further capital outflows. This as Fund Managers with investment-grade mandates will be forced to sell South African government bonds.
The coronavirus has worsened conditions for the already weak local economy now expected to contract by -2.7% this year. Dealing with budget shortfalls, borrowing costs will be significantly higher for South Africa.
The National Treasury says the downgrade could not have come at a worse time. It, however, says government remains committed to implementing structural reforms, address the weak economic growth, the constrained fiscus and implement measures to contain the coronavirus.
The impacts of the disease itself would be far worse, said Owen Nkomo, Chief Investment Officer of Inkunzi Investments:
