Coronavirus could sink South Africa’s economy by 6%: Dawie Roodt

 ·17 Mar 2020

The coronavirus pandemic will have a massive impact on South Africa’s economy, with a continued recession and a downgrade from ratings agency Moody’s all but confirmed, says Efficient Group chief economist Dawie Roodt.

Speaking at a Sakeliga conference on Tuesday (17 March), Roodt said the country was facing a “crisis on top of a crisis”, noting that South Africa’s economy was already predicted to have a bleak 2020 before the impact of the coronavirus was even considered.

“We had two subsequent negative economic growth quarters last year, with economic expansion around 0.2 % for the full year of 2019. This was a ‘locally created’ disaster caused by wrong macroeconomic policies and an incompetent government,” he said.

Without the additional crisis of the coronavirus, Roodt forecast that South Africa’s economy would have grown by around 0.5% in 2020. But this is no longer the case.

The first quarter of 2020 is unlikely to be greatly affected by the coronavirus, he said, as it only hit the country in March, the last month of the quarter.

Despite this, he believes that Q1 2020 GDP data will still be flat at around 0% or just below – meaning South Africa will have three consecutive months of negative growth.

“The second quarter is when we are really going to feel the impact and I expect a significant contraction of between 5% and 6%,” Roodt said. “The third quarter will likely improve a little bit but will still be negative. The fourth quarter might then see us report positive growth.”

While there are a lot of different factors to consider, Roodt said that the economy will likely contract by 1% to 3% over the course of 2020.

This echoes sentiments expressed by groups like BNP Paribas earlier in the month, also predicting a contraction for 2020.

With a number of sectors set to be hit by the coronavirus, Roodt also forecast that the country’s unemployment rate will also reach record highs in 2020.

People are going to get sick, Roodt warned, adding that the first authority that people will make contact with, will be a “mostly dysfunctional” local authority.

“The local authorities are a mess and a disaster,” he said, citing reports from the auditor general. “We need a strong local authority to manage this crisis.”

The economist said that he also has concerns about the health authority, which is also not very well managed.

“I do not know if they will be able to manage thousands of people getting ill in South Africa,” he said.

Messaging from government over the outbreak has been to encourage social distancing, to help prevent a rapid spread of the virus which would ultimately overburden the healthcare sector.

Business impact

Businesses like Takealot will flourish in the short term as people look to order goods online – physical retailers meanwhile, profited from panic buying in South Africa, Bloomberg reported.

A rush by worried South African shoppers to stock up on food and vital supplies spurred sharp gains in Johannesburg retail stocks Tuesday, in the wake of president Cyril Ramaphosa declaring a national disaster because of the coronavirus outbreak, it reported.

Shoprite Holdings, Africa’s largest grocer, jumped 13% to be among the best-performing stocks. Woolworths Holdings, a seller of high-end speciality foods, gained 7.1%. Pick n Pay Stores, rose 11%.

“Some people in the market have been seeing the pictures of product lines flying off the shelves, hearing about the inventory shortages that stores are having due to the panic buying and are perhaps seeing it as an opportunity,” Lulama Qongqo, an analyst at Mergence Investment Managers, told Bloomberg.

While the South African government has not announced any major stimulus plans around the coronavirus, Employment and Labour minister Thulas Nxesi said the government would introduce measures to help distressed companies.

A period of reprieve will be considered in order for companies not to contribute to the Unemployment Insurance Fund (UIF). He said the Funds Temporary Employer/ Employee Relief Scheme will be used to ensure that workers are not laid off.

“In instances where companies decide to close for a short period as a precautionary measure, the short term UIF benefit will kick in. If a company contemplates a short term shut down, they are required to inform the Unemployment Insurance Fund. Our team will visit these companies to provide assistance with the processing of the claims,” said Nxesi.

He said in instances where an employee has to be self-quarantined for 14 days, such a leave will be recognised as a special leave which will be fully paid on condition that the reason for the quarantine meets the requirements and that employee can apply for UIF benefits.

In an event that an employee is required to be quarantined for longer than 14 days as a result of having travelled or been in contact with an infected person, such a leave will be recognised as a special leave and that employee will be eligible to apply for unemployment insurance benefits, added Nxesi.

Read: DA proposes relief measures for businesses caught in coronavirus contagion

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