The Economic Cost South Africa is Paying Due to Coronavirus

SARB counts the cost South Africa is to pay du to Coronavirus. As the world continues to reel from the onslaught at the hands of the Coronavirus global pandemic, all countries are starting to have a fair understanding of the gloomy picture of economic losses which will be suffered as result of this ongoing global pandemic.

The International Monetary Fund (IMF) now projects that South African GDP (gross domestic product) will contract by 5.8% in 2020 as the economic impacts of the global and domestic shutdowns are brought to bear.

The South African Reserve Bank (SARB) projects a 6.1% contraction, a drastic increase from the 0.2% shrinkage expected just three weeks ago.

SARB

South Africa Reserve Bank

The two-week extension of the South African lockdown alone is expected to cut overall consumer spending by $7.5 billion in 2020, according to NKC, representing a reduction in per capita consumption of around $125 this year. Taking into account the five-week lockdown, NKC forecasts consumer spending at $186 billion this year, reflecting a 7.1% reduction from 2019.

Following an emergency meeting over the Easter weekend, the South Africa Reserve Bank decided to cut the country’s benchmark interest rate by 100 basis points to a record low of 4.25%, following another 100 basis point cut in March.

SARB Governor Lesetja Kganyago cautioned that the sharp economic contraction, increased fiscal risks, a weakening currency and higher borrowing costs for the government, banks and businesses have heightened the risk to South Africa’s economy.

However, the extended lockdown and slower recovery will place downward pressure on inflation, the SARB’s Monetary Policy Committee highlighted, which in turn could free up space for monetary policy to respond to the demand shock caused by the pandemic.

“A looser monetary stance will support the economy on the margins and the SARB has adopted a wide variety of measures to improve liquidity conditions,” NKC’s Jacques Nel said in a note Tuesday.

“While the SARB was well-positioned to increase monetary stimulus, the magnitude of the Covid-19 economic shock means there is little it can do to prevent an economic crash this year.”

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