Covid-19 knocks SA economy, but there is hope

South Africa’s growth shrunk by 1.4% in the fourth quarter of 2019 on the back of a 0.8% contraction in the third quarter, thus pushing South Africa into a technical recession. Therefore, the coronavirus crisis could not have emerged at a more stark period.

But it is not all doom and gloom, according to two economic analysts who have reacted to measures announced this week by President Cyril Ramaphosa in response to the virus, which by yesterday infected 554 people in South Africa.

While Ramaphosa should be credited “for taking active measures aimed at containing and stopping the further spread of the virus”, Professor Peter Bauer from the University of Johannesburg’s school of economics, expressed concern that the government bailout to business might not make an impact in alleviating the plight of the small micro and medium enterprises (SMME) sector, particularly informal traders.

“While the president should be lauded for taking action, the bailout plan from government is certainly not going to be enough,” said Bauer.

“Unlike small businesses, big companies have reserves and resources to buffer the coronavirus storm.

“Tax breaks may sound good, but will businesses have fully recovered after six months to pay back taxes back to the state?

“The government’s support on business may also be hampered if workers who may be laid off, cannot get jobs afterwards.”

Asked about the future economic outlook, London-based FXTM global head: currency strategy and market research, Jameel Ahmad, said: “It’s a disaster in the sense that the lights of the world economy have been turned off and no one knows when they can be turned back on.”

On criticism that measures announced by Ramaphosa fell short, Ahmad responded: “Even on a world level, measures to support hardship at this time are not sustainable from a spending sense, but they are absolutely crucial and all hands need to be on deck to prevent what is already spiralling into an infecting global health disaster to lead into a lengthy economic depression.”

In raising funds, Ahmad said South Africa could “look to selling bonds to raise cash”.

He explained: “Despite the expected credit rating by Moody at the end of March, there is still healthy demand for South African government debt.

“The weekly government bond auction yesterday was another test ahead of the looming rating decision as South Africa sold roughly $225 million (about R3.9 billion) worth of bonds at healthy bid-cover ratios.

“Central banks globally have a huge role to play in helping cushion a global health disaster turning into a prolonged economic depression. This is why world central banks are leaping all over to provide ammunition and loosen monetary policy, which you saw in South Africa only last week when interest rates were dropped by a full percentage point.

“What the SA Reserve Bank can do at this time is set the relevant monetary framework in place so that it helps the economy rebound, once this uncertainty is finished,” said Ahmad.

– brians@citizen.co.za

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