Economic growth forecasts lowered after looting in Gauteng and KZN
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The prospects for a recovery of South Africa’s economy were dealt a significant blow this week as investor confidence was severely damaged by civil unrest, looting and vandalism.
The stock market held strong, and the rand ended the week after falling to three-months lows at the height of social unrest.
The country was engulfed by riots and sporadic looting of shopping malls and factories in Gauteng and KwaZulu-Natal that began with the torching of trucks last week.
The catalyst for the unrest was the sentencing of former president Jacob Zuma to 15 months in prison for contempt of the Constitutional Court.
The unrest caused disruption to the Port of Durban, which handles 65 percent of the country’s container traffic.
KwaZulu-Natal and Gauteng account for more than half of South Africa’s gross domestic product (GDP).
PricewaterhouseCoopers (PwC) this week slightly revised down its GDP growth forecast for this year, from 2.7 percent to 2.3 percent.
PwC chief economist Lullu Krugel said these events essentially placed key areas of the Gauteng and KwaZulu-Natal economies in a virtual level 5 lockdown.
“Our calculations show that national GDP growth could be 0.4 percentage points lower this year due to this week of significant disruption,” Krugel said.
“Given the loss in potential economic growth, we estimate up to 50 000 jobs could be at risk under the baseline scenario.”
The South African Reserve Bank has already warned that the economic outlook was highly uncertain, and would depend on the pace of the Covid-19 vaccine roll-out.
The riots have disrupted the vaccine roll-out in KwaZulu-Natal.
Intellidex said it was concerned about the very delicate situation of ethnic tensions in KwaZulu-Natal.
Head of capital markets research Peter Attard Montalto said they had revised down their 2021 GDP forecast by 0.7 percent due to the impact of the unrest.
“We have put total cost at about R50 billion and the GDP loss at about R40bn total or about 0.7 percent GDP off 2021 GDP,” he said.
“We lower our forecast therefore from 3.8 percent we got to with the Covid third wave impact to 3.1 percent. We keep next year’s growth at 2.7 percent.
“We are concerned about the impact into lower long run potential growth from foreign direct investments and local investor risk aversion,” he said.
The country is on adjusted level 4 lockdown, with the sale of alcohol banned and restrictions on gatherings, while the hospitality industry operates under difficult conditions.
Industry bodies have urged the government to deploy more SA National Defence Force members at hot spot areas.
Fitch Ratings said on Friday that the violence highlighted tail risks to social and political stability.
The ratings agency said the violence underscored the risk that exceptionally high income inequality and unemployment could jeopardise social and political stability over the medium to long term.
Fitch’s senior director for Africa sovereigns, Jan Friederich, said the effects of the riots were unlikely to affect the country’s rating level, which Fitch affirmed below investment grade with a negative outlook in May.
The economy has, however, performed better than expected and Fitch revised its GDP forecast for 2021 to 4.9 percent in June, from 4.3 percent in May.
“A greater near-term risk is that public finances could be affected if the government reacts to the riots by easing fiscal policy,” Friederich said.
“In May, we commented that failure to implement fiscal consolidation measures that raise confidence in the government’s ability to stabilise fiscal debt/GDP over the medium term would be a factor that could lead to a rating downgrade.”