JOHANNESBURG - The South African economy experienced its wildest swing in decades this year after the impact of the Covid-19 pandemic accelerated the country’s recession to deeper levels and plunged global markets into turmoil.
After beginning the year on a decline, the onslaught of Covid-19 pushed South Africa’s gross domestic product (GDP) to a downturn never seen before as economic activity stalled.
As a result, South Africa has forecast to record its lowest GDP growth in 90 years this year as the economy is expected to decline by at least 7.2 percent.
State-owned enterprises (SOEs) also deteriorated further during the period, with South African Airways (SAA) grounding its flights while managing a business rescue process.
Eskom, one of the country’s largest SOEs, saw its debt rising further to R463 billion as the municipal arrear debt breached R30bn for the first time.
Unemployment has also risen to unprecedented levels, reaching its highest rate of 30.8 percent as 2.2 million jobs were lost at the height of the lockdown in the second quarter.
Tax collection has plummeted as a result of the economic impact of the Covid-19 pandemic, with the SA Revenue Service (Sars) forecasting a R300bn tax revenue shortfall.
Co-founder of Capital Markets Trading, Daniel Kibel, said the Covid-19 pandemic had caused a global unemployment crisis.
He said thousands of small and medium businesses had been forced to close their doors while larger businesses were cutting costs drastically.
“The potential outlook for emerging markets like South Africa is precarious at best. South Africa was already facing economic difficulty before Covid-19.
“Mismanagement and corruption, along with Eskom’s troubles, were serious sore points. And the pandemic has not helped matters.
“We can only hope that, post-Covid, the population’s energy will be pointed at repairing the crumbling economy. But South Africa’s road to recovery is likely to be a long one,” said Kibel.
The rand also weakened to its lowest level in April, touching R19.35 against the dollar after having begun the year on a strong R14.01 to the greenback.
But the rand has clawed back most of its losses as it is now trading around R14.70 on global optimism, which means it is 24 percent stronger from the R19.35 low in April.
The country’s sovereign credit rating was downgraded deeper into sub-investment territory by all three major ratings agencies as fiscal metrics deteriorated and the debt widened.
National debt levels had already reached record levels before the crisis, threatening to collapse the government finances with major systemic financial and social consequences.
The government injected an unprecedented R500 billion stimulus into the economy, derived from a variety of sources, including large borrowings from international lenders.
The National Treasury had to table a revised budget appropriated from other government programmes in the middle of the year to respond to the financial demands of the crisis.
The SA Reserve Bank went on an aggressive monetary policy stance, cutting interest rates six times to a cumulative 300 basis points as headline producer and consumer price inflation remained on the lower end of the target band due to weak demand.
Investec economist Kamilla Kaplan said more businesses could find themselves in financial distress as financial institutions had started rolling back temporary relief measures.
She said this could be exacerbated by the subdued pace of economic momentum and difficult trading conditions, particularly in sectors such as leisure and hospitality.
“Similarly, insolvencies are also at risk of rising, as the government’s relief programmes will eventually be wound down and the surge in unemployment will likely result in an increase in consumer insolvency filings,” Kaplan said.
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