Intellidex now expects 10.6% contraction in South Africa's GDP

29th April 2020

By: Simone Liedtke

Creamer Media Social Media Editor & Senior Writer

     

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Financial consultancy Intellidex has revised its gross domestic product (GDP) outlook for South Africa for this year to a contraction of 10.6%, adding that about 1.7-million jobs could be lost owing to the Covid-19 pandemic and subsequent lockdown and phasing out of restrictions.

In a webinar on April 28, Intellidex director and capital markets research head Peter Attard Montalto noted that its forecast had previously anticipated a 16.4% contraction in GDP owing to the lockdown regulations in the country.

However, the forecast has been revised upwards following the announcement by President Cyril Ramaphosa of a R500-billion economic stimulus plan last week.

Montalto lamented that, overall, taking the risk-adjustment strategy and phasing down of lockdown regulations into account, the market consensus still seems to be that the severity of the macro and fiscal impact, or the economic shock, and the length thereof, is “still grossly underestimated”.

This is further exacerbated by South Africa heading into its winter months, and coinciding flu season, which Montalto said not only reduces people’s respiratory health, but places South Africa “in a very different profile” when compared with other regions, like Europe, which are now heading into summer.

However, while the consultancy focused on discussing its outlook for the current year, Montalto indicated that Intellidex was more concerned about the economic impacts post-2020, as the lingering effects of the virus and increasing unemployment rates could prolong the recovery of the South African economy, despite various stimulus packages being brought into play.

Touching on the economic stimulus plan, Montalto questioned South Africa’s initial response to the announcement as a “large, but normal shock”.

He explained that concern surrounds the implementation of the stimulus plan, which was announced during South Africa’s initial five-week lockdown and amid a “growing hole” with the upcoming stages of the lockdown.

He added that “some institutional missteps” were made, and that the R500-billion (equal to about 10% of GDP) places the government’s decision-making processes into further question.

Montalto further lamented the lack of firm support surrounding jobs in the stimulus package.

The funding of the stimulus package is also “at the cliff edge”, he noted, imploring government to be more transparent and clearer as to how the package is to be funded.

This, he added, could be addressed during an emergency National Budget briefing by Finance Minister Tito Mboweni, despite there being no confirmation yet as to when this might take place.

However, while investors and markets are set to give “no benefit of the doubt” on the structural reforms happening, Intellidex co-founder and executive chairperson Stuart Theobald said the “effectiveness is not guaranteed”.

Speaking to the Bank Guarantee Scheme, Theobald explained that this is an initial R200-billion scheme fully guaranteed by National Treasury, however, with the final details still being hashed out between the various parties, it is “unlikely” that banks will be able to roll out the intended loans by the end of April.

The finalisation of the scheme is much more likely to happen during the course of May, he said.

On top of South Africa’s economic crisis, he noted that the banking sector was faced with a financial crisis, and that it was “unclear how banks will deal with the measures and keep lending going” during the phasing down of lockdown regulations.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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