South Africa set to suffer a significant setback from lockdown
JOHANNESBURG - South Africa’s already weak economy is set to suffer a significant setback following the government’s announcement of a 21-day nationwide lockdown to curb the spread of the coronavirus.
The lockdown. has already seen the hospitality and aviation industries announcing complete operational closures during the three-week lockdown that begins on Friday.
FXTM’s Jameel Ahmad said yesterday that the retail, tourism and hospitality industries would be hit hardest. Ahmad said it would make businesses feel like the lights had been turned off, and no one knew when they were going to come back on. “Essentially, anything outside of the food industry and supermarkets, everybody is fated to feel the same thing,” Ahmad said.
“The biggest impact will be on consumption and consumer-spending related-industries, because obviously people are encouraged to stay indoors, which will restrict recreational and consumer-related spending activities.”
Growth in real final consumption expenditure by households accelerated somewhat in the fourth quarter of 2019 supported by faster growth in real disposable income, but real gross domestic expenditure decreased by a further 4.6 percent.
Ahmad said Covid-19 may present a light at the end of the tunnel for the battered economy as the country braces for a long-awaited credit review by Moody’s Investor Services. Moody’s, the only ratings agency that still has South Africa’s credit rating one notch above sub-investment grade, will make its review of South Africa’s credit rating on Friday.
“For the ratings review, I wouldn’t worry, as most likely, if you’re looking at what is happening with the global chain of events, this review is probably going to be postponed or pushed back,” Ahmad said.
“Everybody understands that we are looking at a global health disaster and crisis, so countries’ finances and their fiscal measures won’t be frowned upon at this time, because everybody understands that governments need to do everything they can to stop this disease.” Minister of Trade and Industry Ebrahim Patel said yesterday that the impact of Covid-19 on the economy had not been measured, as the government was still trying to curb its spread.
Patel said, however, that the Covid-19 – which has been declared a national disaster – will put strain on the economy, including small business owners and ordinary citizens. He said the government, led by the Industrial Development Corporation (IDC), had put a package of more than R3 billion for industrial funding and to fast-track financing for companies available.
“It is important that industry does not come to a standstill and therefore the IDC is responding to sector challenges that arise from this crisis, whether these are surges in demand or those industries that are facing distress,” Patel said. The government has also established a Solidarity Fund with R150 million in seed funding to accelerate the country’s response to the virus. Futurist Marius Oosthuizen said the economic impact of Covid-19 would play out in three waves for South Africa and hamper growth significantly.
“The first wave, which is currently playing out, is having a direct impact on tourism, aviation and commodity demand,” he said. “South Africa, in addition to already being in a fragile economic state prior to this pandemic, is dependent on commodity exports and is highly exposed to Asian and US consumer markets. It is for these reasons that I believe we will face a contraction in gross domestic product of between 3 and 5 percent as a result of Covid-19.”