South Africa’s GDP recovery is likely to take a knock after the discovery of the new Omicron Covid-19 variant, say economists from the Bureau for Economic Research (BER).
The projected quarterly real GDP recovery in Q4 2021 from the likely Q3 contraction was already facing downside risks after the prolonged steel sector strike in October and load-shedding in October and November, the group said in a research note on Monday (29 November).
“The likely further rise in Omicron driven Covid-19 cases, the threat of stricter lockdown measures and the sudden foreign tourist cancellations place additional downside pressure on Q4 GDP,” the BER said.
“Depending on the length and severity of the domestic fourth wave, this may also have adverse spillover effects into economic activity during Q1 2022. Harsher Covid-19 lockdown restrictions will depend on hospitalisations and the pressure on the health sector.”
Interest rates, grants and other knock-on effects
The latest Covid developments may also have policy impacts, the BER said.
It argues that the South African Reserve Bank’s monetary policy committee could decide to pause the interest rate hiking cycle at their January 2022 meeting.
Part of the reasoning was that South Africa could be at the peak of a fourth wave by then – and this likelihood has increased over the past week, the BER said.
“Regarding fiscal policy, further economic pain, including potential hospitality sector job losses, increases the probability of an extension of the social relief of distress grant beyond March 2022 when it is set to end.
“On the inflation front, the impacts could range from a sustained weaker rand exchange rate in a risk-off global environment that is countered by a lower oil price, if the variant spreads across the world and dampens oil demand, and delayed price effects from a full reopening of domestic contact-intensive industries,” it said.
The announcement of a new variant had a major negative impact on global financial markets on Friday as investor risk appetite deteriorated dramatically.
With falls of 4% in some cases, global stock markets declined by the most in a year. The share prices of major airline companies plunged amid concerns that a more infectious Covid-19 variant would curtail air travel.
Related to this, the Brent crude oil price was particularly hard hit, tanking by more than 10% on Friday, the BER said.
“The sharp market moves were compounded by low liquidity after the Thanksgiving holiday in the US and a shortened Black Friday trading day. At the time of writing, the oil price had regained some lost ground in Asian trade this morning (up 3.5%), but Asian stock markets were down even further after Friday’s sharp losses.”