S&P warns recent civil unrest could dent GDP rebound
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S&P GLOBAL Ratings has warned that the recent civil unrest could slightly dent the expected rebound in gross domestic product (GDP) for 2021.
In a report yesterday, S&P said the civil unrest was a clear example of wide income inequality, increasing poverty levels and poor access to health services.
South Africa experienced widespread looting of retail outlets and manufacturing facilities in KwaZulu-Natal and Gauteng following the arrest of former president Jacob Zuma.
The unrest is estimated to have cost the country R50 billion in lost output and placed at least 150 000 jobs at risk.
S&P’s corporate ratings director, Omega Collocott, said the unrest had also severely hampered supply chains because of blocked road and rail transportation corridors.
Collocott said the damage to elements of the country’s retail and financial infrastructure, economy, and consumer and investor confidence would take longer to repair.
“It is estimated that the unrest will likely shave about 0.7 percent off headline GDP growth in 2021, hit private consumption, and slow the pace of economic recovery,” Collocott said.
“Nevertheless, we expect that strong commodity prices and the base effect from the contraction in 2020 will continue to support GDP growth.
“If the unrest were to recur and last for a long time, this would further pressure the economy and potentially stifle the rebound.”
S&P currently forecast that South Africa’s economy will continue to recover and expand by 4.2 percent this year, because of a rebound in international commodity prices. This was in line with the South African Reserve Bank’s GDP outlook for 2021. The bank last week also cautioned about the downward risks to economic growth because of recent supply disruptions and the protracted lockdown.
This comes hot on the heels of the International Monetary Fund on Sunday saying that South Africa should aim to reprioritise its budget to offset the cost of relief measures.
President Cyril Ramaphosa on Sunday unveiled a socio-economic relief package made possible by the slight improvement in revenue collection because of the commodity super-cycle. The package included reinstating the R350 monthly Social Relief of Distress Grant until March next year and a R400 million contribution to a humanitarian relief fund.
Ramaphosa also announced support for uninsured businesses and other tax incentives, but did not specify the cost of the package.
Anchor Capital’s investment analyst, Casey Delport, said it was risky to anchor ambitious spending plans on excessively optimistic revenue forecast trajectories, because key prices had already declined significantly.
“In response to the recent unrest, we still see the risks to the economic growth rate as biased towards the downside,” Delport said.
“In other words, if global tailwinds remain exceedingly strong and the negative near-term impact of the unrest does not exceed current estimates, it is possible that the revenue overshoot may indeed offset the bulk of the announced relief measures for financial year 2021/22.”