Virus clouds economic outlook

Date: 17 March 2020 | Author: Mwangi Githahu Category: News

THE ECONOMIC impact of President Cyril Ramaphosa’s declaration of the coronavirus outbreak as a national disaster will deal a body blow to an already struggling economy.

Economists and financial experts are saying that while it’s not yet a doomsday scenario, the South African economy is in for a rough ride and may shrink as a result of the Covid 19 pandemic. Efficient Group economist Dawie Roodt said: “The South African economy was in crisis already because of debt, government incompetence and corruption. The Covid 19 pandemic is just adding insult to injury. “It is a little harsh to refer to doomsday scenarios but we are certainly going to have a very tough time. Without a doubt it is going to impact on South Africa’s growth, possibly even driving us into a lengthy recession.” Roodt said: “While I don’t think we will be going to the IMF hat in hand any time soon, the State is going to have to borrow more money from the capital markets.

The downside of this is that the State’s debt will increase and we are already at dangerous debt levels.” Roodt offered a word of caution and said: “We shouldn’t get emotional and call our brokers to sell all our stocks and shares. We will just have to ride it out, it is all we can do to survive this bad period.”

Economist Mike Schussler said: “We are going to see the economy shrink. The only question is by how much and that is difficult to say, but I suspect around a 5% decline is the best guess right now. May even be deeper or a little less. Personal services will also feel large impact such as hair dressers and dry cleaning, and nursery schools will drop, but that is a small sector.”

Business Leadership South Africa (BLSA CEO Busi Mavuso said: “This virus which has been rattling markets has also added more economic fears to the already struggling economy which is now in a technical recession and continues to be plagued by load shedding.”

Mavuso said: “As business we await the fiscal measures that are being finalised as mentioned by the president on Sunday ”

Speaking about the markets, Senior Research Analyst at ForexTime Limited FXTM Lukman Otunuga said: “With global easing building momentum, emerging market central banks are already taking action with the SA Reserve bank expected to cut interest rates by 25 basis points this week from 6.25% to 6%. Given how South Africa is already in a technical recession, the steps taken by the South African Reserve Bank SARB and government amid the virus outbreak will play a critical role in the country’s outlook for 2020 and beyond.”

Absa SA Head of Strategy Research Mike Keenan said: “Global risk aver sion is at the highest levels since the 2008 global financial crisis due to intensifying concerns about Covid 19.” Keenan said: “Our latest forecasts imply local exporters should wait for better levels, while foreign investors should continue foreign exchange hedging their underlying exposure to SA assets.

If Moody’s refrains from downgrading SA later this month, coronavirus fears subside and or the SARB does not cut rates by as much as expected, the rand could prove to be stronger than we now expect. “Conversely, the rand could weaken by more than we expect if global recessionary fears intensify substantially more due to heightened Covid 19 fears.”

This article first appeared on Cape Argus