ECONOMIC FORECAST FOR SOUTH AFRICA UNDER DIFFERENT COVID-19 LOCKDOWN SCENARIOS
South Africa has been in general lockdown due to the Covid-19 virus since 26 March 2020. As such South Africa’s economic prospects have dramatically worsened for the foreseeable future due to the impact of both local and international lockdowns, as well as a host of other non-virus related factors. Even without the presence of the Covid-19 virus and the resulting lockdown, the South African economy was in dire straits due to factors such as very low levels of consumer and business confidence, the international sovereign ratings downgrades of South Africa to below investment grade, economic policy uncertainty, low levels of job creation and resulting high levels of unemployment and poverty, a host of structural imbalances in the economy, a low international demand for South African products, a continuing weakening of the South African Rand against major international currencies, low levels of formal sector entrepreneurship and low levels of fixed investment and fixed capital formation in South Africa.
The Covid-19 virus and the resulting international and local lockdowns have therefore only exacerbated the already dire situation in the South African economy as described above. It is expected that the initial five weeks of national lockdown will directly and indirectly contribute to an economic contraction of nearly 5% in real terms while household consumption expenditure is expected to contract by about 1.5%. Some of the main reasons for this significant impact include that the bulk of businesses could not operate during this period or only to a limited extent, that entrepreneurs reliant on business incomes to cater for their own incomes as well as that of their workers became cash strapped due to the lockdown, while normal manufacturing, trade and fixed capital formation operations were in many instances halted and exports limited. Many businesses may therefore not survive the initial lockdown while about a million people might lose their jobs during 2020.
Should the national lockdown still carry on beyond the initial five week period in the form of the level four lockdown taking the same form in practise as level five or in case a level five lockdown is reinstated later to deal with high infection levels, the impact of the lockdown in conjunction with the vulnerable state of the economy will have an even more negative impact as can be seen from the table above. Should the national lockdown continue to up for ten weeks in the one or other form where business, consumer and government service activities remain constricted, the economic growth rate for 2020 could be about -9.0 percent or even lower while real household consumption expenditure growth due to job losses, low income growth, high levels of unemployment as well as long non-retail periods could be minus 6.5 percent or even lower. Such low growth will in all likelihood have a further negative impact on business and consumer confidence, more negative investment sentiments among local and international investors, further sovereign ratings downgrades which will in turn give rise to a strong devaluation of the South African currency against major international currencies.
This bad news regarding the South African economy during 2020 should, however, in no way be seen as a criticism of the national lockdown to minimize the epidemiological impact of Covid-19 virus. Human life and human capital preservation always come first to ensure long-term economic performance and economic development. As the President indicated, the forecasted dire economic situation could even be an opportunity to build a ‘new economy’ from the current economic crisis. This is in line with the Chinese word for Crisis which consists of two words, namely Danger and Opportunity. The way in which government, business, labour and the community respond to the current economic crisis will determine whether the current economic stagnation results in future economic Danger or economic Opportunities for long-term higher economic growth and development. In the words of the President: “Our new economy must be founded on fairness, empowerment, justice and equality. It must use every resource, every capability and every innovation we have in the service of the people of this country. Our new economy must open new horizons and offer new opportunities.” As South Africans we should remain optimistic despite these trying times as the economy will recover over the long term, and our Nation will once again prosper.