Country Economic Forecasts - South Africa
The South African economy had already entered 2020 on a very fragile footing before the dramatic external developments related to the Covid-19 pandemic emerged. These factors will push the country into a deep economic contraction this year. We forecast that real GDP will contract by 4.9% this year, which is much worse than the contraction in 2009 following the global financial crisis. Domestic policy uncertainty and supply-side constraints have now been accompanied by a global deterioration in business sentiment and a drop in demand for South African goods, all weighing on the country’s economic recovery prospects. 323850175895Economy forecast to contract by 4.9% this year 00Economy forecast to contract by 4.9% this year The South African Reserve Bank (Sarb) surprised most with a 100-bps reduction in the country’s repo rate in March. This follows a 25-bps policy rate cut in January. There is scope for further monetary stimulus given current interest rate levels, but this would have to be accompanied by an improbable shift in policy (specifically related to SOEs and the energy sector), a faultless response to the domestic coronavirus crisis, and an improbable jump in consumption during the second half of the year to generate an economic performance anywhere near the central bank’s forecast of a 0.2% GDP contraction this year. Concerns regarding the economic impact of the coronavirus have resulted in mayhem in international financial markets and South Africa has not been spared. The rand has lost just over 12% of its value relative to the US dollar since the start of March, while the yield on the R186 government bond (10.5%, 2026) has increased by over 250 bps so far this month. Much of this can be attributed to a once-in-a-generation deterioration in global market sentiment, but the dismal global economic picture will feed into South African economic weakness.
Learn how to effectively navigate the market research process to help guide your organization on the journey to success.Download eBook