SA’s shock second-quarter collapse in GDP and uncertainty about the economic rebound as lockdown restrictions are eased suggests the economic outlook for the year may be even bleaker than the latest forecasts from the Treasury and the Reserve Bank, finance minister Tito Mboweni warned on Sunday.
While the Treasury has forecast a 7% contraction, the Reserve Bank has put the figure at 7.3%. Some economists are predicting an even worse outcome, with a GDP reduction in double digits.
"The contraction in growth is larger than expected by the National Treasury and Reserve Bank, which raises the risk that the actual GDP outcome for 2020 could be lower than previously thought by policy makers as well as the broader market," Mboweni wrote in an opinion piece published in the Sunday Times and City Press.
GDP plunged by a record 16.4% in the second quarter on a non-annualised basis (annualised to 51%), as the lockdown stifled activity in an already weak economy.
Mboweni’s comments come just days after ratings agency Moody’s Investors Service said the second-quarter GDP collapse would intensify the state’s fiscal challenges, particularly its ability to generate revenue.
It also warned that renewed load-shedding by state-owned electricity generator Eskom would dampen the anticipated economic recovery in the second half of the year as lockdown restrictions are eased.
The government imposed one of the world’s swiftest and most stringent lockdowns just three weeks after the first case of Covid-19 was confirmed in SA on March 5.
For the first five weeks all but essential workers were confined to their homes and the economy ground to a virtual standstill. The government then introduced a gradual easing of restrictions, but six months later there are still controls on liquor sales, a curfew, and limits on the size of gatherings.
Mboweni warned that the weaker GDP figures could dampen already weak tax revenues and worsen the budget deficit, which the Treasury expects to come in at about 15.8% for 2020.
"There is still a risk that the weaker GDP figures will translate into further revenue shortfalls, though the vast majority of the reduction is already reflected in the estimates published in the supplementary budget in June," Mboweni wrote.
"The expected shortfall of more than R300bn, around 6.2% of GDP, means we will have to borrow even more.
"Failure to contain our ballooning debt and debt service costs and narrow the budget deficit will damage the long-term economic prospects," he wrote, pledging to speed up reforms and enable more private sector investment in the electricity sector.
Eskom is widely regarded by economists and ratings agencies as the single biggest risk to SA’s economy, because of its debt and inability to maintain a reliable electricity supply.
Its debt, which ballooned over the past decade largely as a result of building new power stations Medupi, Kusile and Ingula, stood at R488bn at the end of March.
Eskom has implemented more power cuts this year than it has since 2007, according to the Council for Scientific and Industrial Research.
Load-shedding was suspended during the early stages of the lockdown but has resumed as restrictions have eased and demand exceeds its electricity generating capacity.
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