Business for SA sees GDP plunging up to 17%

• Projection dwarfs those that IMF and Moody’s made closer to start of the Covid-19 lockdown

The Covid-19 pandemic and the lockdown could cause SA’s economy to slump by almost 17%, a comprehensive modelling exercise by Business for SA (B4SA) shows in the gloomiest predictions so far.

B4SA is made up of Business Unity SA and the Black Business Council and was formed to respond to the Covid-19 crisis. It said GDP could drop between 10.3% and 16.7% in 2020.

The projection dwarfs those made by the IMF, which has forecast a 5.8% contraction for 2020 and Moody’s Investors Service’s 6.5%, made closer to the start of the lockdown.

The Treasury has been reluctant to put a number to the GDP figure for 2020, although modelling work it has commissioned shows scenarios of declines between 5.6% and 16%, depending on the length and severity of the lockdown.

The bleak outlook for the economy was further underlined on Tuesday when SA Revenue Service commissioner Edward Kieswetter said he expected a revenue shortfall of about R285bn for the fiscal year.

The revenue hole will significantly widen the deficit – at R370bn in February’s budget – and increase the government’s borrowing requirement.

With SA’s bond yields having shot up – rates on debt maturing in a decade are about 10% — some analysts are questioning whether the government can fund itself in the open market on a sustainable basis.

B4SA says the lockdown has temporarily closed 46.4% of businesses and that 85% are reporting below-normal turnover and need financial assistance. It advocates the reopening of the high-value economic sectors as soon as possible. These include trade, agriculture and fishing, which are likely to bounce back quicker, as well as building and construction and chemicals and plastics production, which are high-value sectors that will need support.

Lower economic value sectors such as clothing and textiles and a range of other manufacturing activities are also likely to require support and should be prioritised according to domestic and export demand.

B4SA is due to brief the

media on Wednesday on its various initiatives.

The GDP impact scenarios model both the economic and employment contributions by each sector as well as their geographic location. Estimating the progress of the epidemic over 2020 and the likely provincial lockdown scenarios, the overall effect is then forecast.

A scenario in which all provinces shift to level 2 by June will result in a GDP contraction of 10.3%. A scenario in which most provinces except for the Western Cape, Gauteng and KwaZulu-Natal move quite rapidly to level 3, forecasts a contraction of 14.5%. In a third scenario which sees a second full lockdown for almost all provinces as the epidemic peaks in June, July and August, GDP shrinks 16.7%.

The scenarios take into account fiscal support from the government – which is estimated to have an impact of 5.2% and monetary policy interventions, with an impact of 1.2%.

The sectors most vulnerable to job losses are construction, catering and accommodation, business services and a broad array of manufacturing and agricultural activities. Without considering the effect of government interventions to support employment, such as payments from the Unemployment Insurance Fund, formal employment in construction, for instance, could shrink 8.9%-15.6% and in business services 19.3%-34%.