French international banking group BNP Paribas has cut its GDP growth outlook for South Africa to a contraction of 0.2% in 2020, on the back of continued load shedding and the global impact of the Covid-19 coronavirus.
The group said it already had a sub-consensus view on South Africa before the cut at 0.4%, with most GDP growth projections sitting between 0.5% and 0.9% for the year.
However, it said that “South Africa’s growth woes look set to worsen in the next few quarters. We project a 0.2% contraction in GDP this year, down from our already sub-consensus estimate of 0.4% growth”.
Prospects for 2021 have also been cut, with next year’s recovery now seen as 1.0% growth rather than the prior 1.3%, the bank said.
The two major factors contributing to this view are load shedding and the economic impact of the coronavirus pandemic.
BNP Paribas echoed market sentiments around the coronavirus in that much of the economic impact would be felt due to South Africa’s ties to the Chinese and European markets (which would be exacerbated if local cases – now sitting at 13 confirmed – led to further challenges).
“The impact of the Covid-19 virus on global activity is already becoming more apparent, with severe hits on activity in China and Europe – two of South Africa’s major trading partners – and the worst of it likely to come in H1,” the bank said.
“China represents a significant chunk of the value added in South Africa’s exports and domestic demand, as South Africa does in China’s intermediate imports. Accordingly, we expect the disruption to Chinese activity to weight down on South Africa’s already constrained supply and demand sectors.”
On the domestic side, the local energy supply crisis is also a major factor in the group’s sharp downward revision.
At the start of 2020, the banking group pencilled in 15 to 20 days of power cuts in the first half of the year – but this has already materialised, with much more load shedding expected to come.
“Eskom energy availability is still at alarmingly fragile levels, pointing to a bigger drag on activity and investment this year,” the bank said. “Energy availability close to 60% means more supply cuts are likely in H1, and then again in Q4 2020.”
Load shedding already had a major impact on economic growth in the the fourth quarter of 2019, where QoQ GDP numbers contracted by 1.4%, sending South Africa into a technical recession.
BNP Paribas said that the recessionary figures are expected to not only continue, but get significantly worse, with the group pencilling in a first quarter decline of 3% for 2020.
Unlike other countries, which are pushing through stimulus packages to counter the effects of the global market crash due to the coronavirus, BNP Paribas said South Africa simply does not have the fiscal room to do the same.
However, there is some room for the South African Reserve Bank (SARB) to make some rate cuts – and for some positive outcomes for wage talks between government and the public sector unions.
The group expects the SARB to cut rates by 25 basis points in March, May and July this year – totalling 75bps for the year.