With broad consensus that the Covid-19 outbreak will result in a sharp contraction in global gross domestic product (GDP), as well as for South Africa, in the first half of this year, the consequences of the outbreak are worrying, says FNB Property economist Siphamandla Mkhwanazi.

While the country's recession woes predate the outbreak mainly owing to acute energy supply constraints, supply chain disruptions, as well as restrictions on trade and travel will only exacerbate the malaise, he notes.

FNB expects the South African economy to enter a short, but deep recession this year.

According to the bank’s Property Barometer, it estimates a contraction of 4.5% year-on-year for the year, which is considerably worse than the 1.5% contraction experienced in 2009 after the 2008/9 global financial crisis.

Mkhwanazi says that while decisive actions by the government to slow Covid-19 infection rates are welcomed, they do, however, come at a hefty cost.

Output in externally facing sectors is posited to be the most affected, based on FNB’s estimates that mining and manufacturing should contract by about 7.3% and about 11% year-on-year respectively.

Trade, catering and accommodation is also expected to be heavily hit by the measures implemented by government and general weakness in consumer demand.

To this end, FNB estimates total household spending in South Africa could take a hit of about R62-billion during the 21-day lockdown. This is equivalent to 1.96% of yearly GDP, using 2019 data.

For the housing market, FNB expects a more dramatic impact on transaction volumes, rather than home values.

The barometer indicates that house price growth will likely slow in the low- to middle-priced segments, and nominal decline will deepen in the upper end to reflect weakening fundamentals.

Given the nature of the shock, and using China’s experience as a guide, FNB, however, expects the impact to be relatively short-lived.

The impact could last longer if liquidity dries up and lending standards tighten a tad more than the bank expects, it adds.