S&P Global Ratings has warned that the Covid-19 epidemic will weigh heavily on South Africa’s GDP growth, and expects the country’s economy to shrink by 4.5% in 2020.
In April, S&P downgraded South Africa’s credit rating further into non-investment-grade territory, citing the same reason – fallout from the coronavirus.
South Africa is caught in the grip of a strict lockdown which has been in place for nearly nine weeks, leaving many businesses and individuals without an income.
“Covid-19 will weigh heavily on GDP growth given the strict domestic lockdown that has shut down much of the economy, the markedly weaker external demand outlook, and tighter credit conditions,” S&P said in a research note on Friday (22 May).
“As a result, we now project the economy to shrink by 4.5% this year.”
Government said it notes S&P’s decision to affirm South Africa’s long term foreign and local currency debt ratings at ‘BB-’ and ‘BB’ respectively and maintain a stable outlook.
The country’s credit ratings by S&P remain non-investment grade.
It noted S&P’s position that South Africa’s fiscal position remains weak, with a large coronavirus related fiscal package further exacerbating fiscal problems, “which means the country will have to grapple with a large debt burden as a percentage of GDP, and substantial contingent liabilities”.
“The stable outlook reflects the balance between pressures related to very low GDP growth and high fiscal deficits against the country’s deep financial markets and monetary flexibility,” the government said.
It said that it has acted decisively to prioritise the health and lives of all South Africans. “It has now adopted a risk-adjusted approach to reopening the economy, with the initial easing of lockdown measures on 1 May 2020, and further easing expected from 1 June 2020.”
“Furthermore, government’s R500 billion fiscal support package alongside the monetary policy response will provide substantial support to the economy. In June 2020, a special adjustments budget will set out a range of economic reform proposals and measures to stabilise public finances.”