FNB has warned of a dire micro-economic outlook for 2020, charging that gross domestic product (GDP) could contract by 8 percent on the impact of Covid-19. Photo: Siphiwe Sibeko/Reuters
FNB has warned of a dire micro-economic outlook for 2020, charging that gross domestic product (GDP) could contract by 8 percent on the impact of Covid-19. Photo: Siphiwe Sibeko/Reuters

FNB warns of 8% GDP contraction and almost 800 000 job losses

By Siphelele Dludla Time of article published Jun 11, 2020

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JOHANNESBURG – One of the country’s largest banks, FNB, yesterday warned of a dire micro-economic outlook for 2020, charging that gross domestic product (GDP) could contract by 8 percent on the impact of Covid-19.

FNB senior economist Siphamandla Mkhwanazi said the pandemic had put the country at its worst level in decades, with nearly 800 000 jobs expected to be lost.

Mkhwanazi said Covid-19 had become a “reset” for the economy, with murky and volatile times ahead.

“Our crystal balls remain murky, and our outlook is very uncertain. We had to recalibrate our models, as some of the relationships might or might not hold post this pandemic,” Mkhwanazi said.

“We are probably going to see one of the deepest contractions in the GDP, the deepest we have had in history. In our view, it’s likely to range around negative 8 percent.”

FNB’s GDP forecast is worse than the SA Reserve Bank’s (SARB) 7.1 percent and the IMF’s 5.8 percent contraction this year. The National Treasury has forecast that the economy will contract between 6.4 and 16.1 percent this year. 

Mkhwanazi said the bank’s outlook was of a more permanent base erosion in the economy. He said the bank believed that inflation would average 3 percent on the increased pressure on the economy, adding there was increasing deflationary pressure due to weak demand for products.

The bank said SARB had more room for an interest rates pause, or a further cut of 50 basis points. 

Mkhwanazi said FNB saw a “partial recovery” in 2021/22, which would be lower than contraction, with GDP growth touching 5 percent but coming from a “very low base”. 

He said although the R500 billion stimulus package implemented by the government in March could cushion the blow, it would not prevent contraction. 

Mkhwanazi said this would also come with serious implications for labour markets.

“What is important is that we are likely to see a more permanent base erosion of our capacity to produce as some companies will not open even after lockdown, particularly the restaurant and manufacturing sectors,” Mkhwanazi said.

“This suggests that what we are currently experiencing is more a reset button that has been pressed rather than a pause button. 

“We are likely to see massive job losses. We wouldn’t be surprised if they add up to at least 800 000 in the first round, and what comes after that will be dependent on how corporates and households react.”

BUSINESS REPORT

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