Moody’s says outbreak will trigger recession

The coronavirus (Covid-19) outbreak will trigger a recession in Africa that will have longlasting negative economic and social consequences, Moody’s Investors Service said in a recent report.

The report on the impact of Covid-19 on African states indicates that deep disruptions to global supply, cuts in demand and falls in commodity prices triggered by the outbreak will lead to a slump in economic growth.

“The coronavirus outbreak and its wider impact on global trade, commodity prices and financial markets present severe economic, financial and social challenges to many African sovereigns. Many governments have limited financial and institutional capacity to absorb the current shock. The longerlasting negative effects on the region’s credit profiles will leave them with diminished capacity to absorb future shocks,” the ratings agency said in the report.

It said while growth will resume later this year in concert with the rest of the world, the recovery will be slow and there is a risk of longer-term scarring from the crisis.

Long-lasting consequences of the coronavirus shock threaten governments’ capacity to reverse the increase in debt burdens. Assuming that growth returns and that this year’s wider deficits can be reined in subsequent years, most African governments’ debt burdens will stabilise after a material rise this year.

“We have significantly reduced our growth forecasts for the African sovereigns that we rate in response to the coronavirus crisis,” said Moody’s in the report.

In the Southern African Development Committee (SADC) region, Namibia is currently rated at Ba2 negative and South Africa at Ba1 negative, while Botswana is rated A2 negative. According to Moody’s website, obligations rated Ba are judged to be speculative and are subject to substantial credit risk. The modifier 2 indicates a midrange ranking.