SA’s growth forecasts are lowered further
JOHANNESBURG - As South Africa awaits the Moody’s credit rating decision, the agency yesterday lowered the country’s economic growth forecast further, charging that it expected it to deteriorate this year.
In its updated report on the annual sovereign outlook, Moody’s slashed South Africa’s 2020 growth forecast further to -0.6 percent from a -0.3 percent forecast in February.
Moody’s said that the corporate sector, investment and employment would be negatively impacted by the coronavirus (Covid-19) pandemic.
Sarah Carlson, senior vice-president in Moody’s Sovereign Risk Group, said the country would be affected by declining global growth prospects as the impact of Covid-19 spreads. Carlson said all emerging markets would grow at rates that were well below their potential as the shocks of the Covid-19 pandemic and the sharp fall in oil prices were exposing sovereigns’ vulnerability along each of the credit channels.
“They will lower gross domestic product (GDP) growth and fiscal strength, deepen weaker sovereigns’ vulnerability to shifts in investor sentiment, and expose wider weaknesses in domestic and international institutions,” Carlson said.
“The rapid spread of the coronavirus outbreak and sharply lower oil and asset prices have significantly weakened the global economic outlook and are creating a severe and extensive credit shock across many sectors, regions and markets.” Moody’s, the only ratings agency that still has South Africa’s credit rating one notch above sub-investment grade, is scheduled to announce its periodic review of South Africa’s sovereign credit rating on Friday. The Institute of International Finance (IIF) was not as modest as Moody’s in cutting South Africa’s growth forecast. The IIF said the country’s economy will contract a significant 2.5 percent this year as the world economy entered a recession, with global growth in 2020 cut from 2.6 to 1.6 percent.
“South Africa entered 2020 with an overvalued currency, a persistent current account deficit and anaemic growth. A deep downturn is the likely result in 2020, given the sharp sudden stop in emerging market inflows,” it said.
“Underlying all these forecasts is profound uncertainty as to how virulent the Covid-19 pandemic will be in emerging markets. Large urban centres and limited testing are material downside risks.” Last week, the SA Reserve Bank (SARB) marked down its global growth forecast to 1.1 percent and domestic growth to 0.2 percent for 2020. SARB said the global economic and financial conditions were expected to remain highly volatile for the foreseeable future. Covid-19 has infected more than 350 000 people and resulted in more than 15 000 deaths worldwide and collapsed financial markets amid risk sell-offs. South Africa has recorded more than 400 positive cases of Covid19 in two weeks.
NKC African Economics yesterday said that the global economy was forecast to slow to 0 percent growth this year after more countries announced draconian policy measures to limit the spread of Covid-19.
NKC said this GDP contraction meant that the global economy was set to shrink by 2 percent on a quarterly basis in the first quarter, and 0.4 percent in the second quarter, well past the GDP per capita contraction definition of a global recession. “We now see global growth contracting in quarter one at a faster pace than during the global financial crisis,” it said.
“Global growth is likely to average just 0 percent in 2020, down from 2.5 percent in January, making this our largest two-month forecast revision ever. The speed and scale of the falls in GDP across so many countries will make the first half of 2020 look very much like the global financial crisis.”