Deepest economic contraction in a century forecast for SA

South Africa’s economy could face its deepest contraction in a century, according to the World Bank’s latest Global Economic Prospects report. The report also found that the global economy would shrink 5,2% this year, representing the most severe recession since the Second World War.

According to Dawie Maree, head of agriculture information and marketing at FNB, South Africa had a very open and small economy, which meant that anything that happened in the world economy had an immense impact on the local economy. “If the world economy shrinks 5,2%, then South Africa’s economy will shrink even more.” According to the report, South Africa’s economy would contract 7,1% this year, compared with the 1,7% growth the World Bank previously forecasted, as stringent measures to combat the coronavirus disease (COVID-19) pandemic had seriously curtailed economic activity.

Maree predicted a contraction of 8,2%, but added that he expected agriculture to show some positive growth this year. He attributed this to production looking much more positive than in the past, but said constrained demand could pose a challenge.

“Soft commodity prices will continue to be under pressure due to weak economic growth.

“On the grains side, for example, we expect a good maize crop and therefore the supply will be higher than the demand, which will put pressure on prices.

“Meat demand is limited due to consumers’ current financial situation, and they are instead moving to staple foods and cheaper protein sources.”

However, Maree pointed out that this meant some good news in terms of getting food inflation under control and therefore, interest rates would likely also remain “on the low side” for a longer period.

According to the report, growth was expected to rebound in 2021 to 3,1%.

However, it indicated that the prospects for faster growth over the medium term were likely to be constrained by “fiscal tightening”. Growth would continue to be dampened by persistent power supply disruptions and the need for extensive maintenance and repair work on the national grid, the report said. – Jeandré van der Walt

interest rates will remain ‘ on the low side’