The Covid-19 pandemic has struck South Africa at a time of very weak growth and fiscal pressures.

Gross domestic product (GDP) growth has taken a big hit, owing to strict lockdowns and markedly weaker external demanding, according to a report published by financial services company S&P Global Ratings, titled ‘South Africa is Yet to Turn a Corner Post Covid-19’.

“We now project that the economy will shrink by 4.5% in 2020, partly supported by a R500-billion fiscal package. The fiscal deficit will rise to 13.3% of GDP in 2020 due to lower tax revenues, the already sizable budget expenditure in February 2020, and the Covid-19 support package,” says S&P credit analyst Samira Mensah.

The company lowered its foreign currency rating on South Africa to ‘BB-’ from ‘BB’ on April 29. The stable outlook reflects the balance between pressure relating to very low GDP growth and high fiscal deficits, and the sovereign's deep financial markets and monetary flexibility.

S&P anticipates that the banking sector will contract owing to the economic crisis and forecasts that credit to the private sector will shrink by about 5% this year. It expects the sector’s credit losses will rise to about 1.2% this year, mainly stemming from default on retail and small- to midsize enterprise loans.

Nevertheless, the South Africa Reserve Bank’s liquidity measures will ensure the stability of the banking and financial sectors, it says.

Although insurance claims may increase owing to Covid-19, S&P does not expect the losses to be material. It caps its global scale rating on insurers at the ‘BB’ local currency ratings on South Africa.

The corporate sector’s resilience to Covid-19 reflects country-specific government measures and the consumer and business response, says the company.

Lockdowns have affected transport companies and retailers, particularly owing to reduced consumer activity.

Utility-like corporations (telecoms, power, water and infrastructure companies) are more resilient, but the outlook for demand and affordability is uncertain.

Rating changes in the corporate sector reflect the extend of the government's support of State-owned enterprises; constraints on the company’s ability to rate specific corporations above the sovereign; and rating compression on the national scale.