Governor of the South African Reserve Bank Lesetja Kganyago has announced that the Gross Domestic Product (GDP) is expected to contract by seven per cent this year.
Current forecasts from the International Monetary Fund show the global gross domestic product (GDP) decreasing by about three per cent this year. The strength of the global economic recovery will depend in part on how quickly countries are able to open up for economic activity safely, and in particular how effectively societies comply with social distancing rules. The World Health Organisation advises that further complications from the virus are being identified and the pandemic is unlikely to end quickly, with the virus coming in waves over time.
A statement released by the South African Reserve Bank said, “The crisis has caused extreme volatility in financial asset prices with sharp and deep market sell-offs followed recently by a partial recovery.
“The Covid-19 outbreak has major health, social and economic impacts, presenting challenges in forecasting domestic economic activity. The compilation of accurate economic statistics will also remain severely challenged.”
Even as the lockdown is relaxed in the coming months, for the year as a whole, investment, exports and imports are expected to decline sharply. Job losses are also expected to be widespread. Easing of the lockdown will support growth in the near term and some high-frequency activity indicators show a pickup in spending from extremely low levels. However, getting back to pre-pandemic activity levels will take time. GDP is expected to grow by 3.8 per cent in 2021.
“Despite sustained higher levels of country financing risk, the Monetary Policy Committee (MPC) notes that the economic contraction and slow recovery will keep inflation well below the midpoint of the target range for this year. Barring inflation risks outlined earlier, inflation is expected to be well contained over the medium-term, remaining close to the midpoint in 2021 and 2022. ”
Against this backdrop, the MPC decided to cut the repo rate by 50 basis points, taking it to 3.75 per cent per annum, with effect from 22 May.
“Global economic and financial conditions are expected to remain volatile for the foreseeable future. In this highly uncertain environment, future decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook.”
The next statement of the Monetary Policy Committee will be released on 23 July 2020.
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