The spread of the coronavirus dealt another body blow to a South African economy already in recession and reeling from power shortages, and there’s little the government can do to counter it.
Covid-19 cases in Africa’s most-industrialized nation have doubled every two days since the first one was announced on March 5, with 62 infections now confirmed. Faced with the prospect of a tidal wave of patients overwhelming an already stretched public health system, President Cyril Ramaphosa on Sunday announced travel restrictions on some foreign nationals, port and school closures and bans on large public gatherings to curb the disease’s spread.
While health experts welcomed the government interventions, Ramaphosa acknowledged the potentially severe and lasting impact on employment and production. Domestic financial markets reflected investor anxiety about the effects the disease may have: stocks fell by the most on record on Monday, the rand weakened as much as 2.9% against the dollar and bond yields surged.
Already beleaguered tourism companies and exporters are among those whose survival is on the line. Economists including BNP Baribas’s Jeffrey Schultz are forecasting a contraction in gross domestic product this year, a far cry from the government’s forecast of 0.9% growth.
“South Africa’s growth woes look set to worsen in the next few quarters,” Schultz and strategist Burak Baskurt said in emailed comments even before the announcement by Ramaphosa.
The travel restrictions announced by the government include a ban on nationals from countries such as the U.K., Germany and the U.S., South Africa’s three biggest sources of foreign tourists. That’s after tourism and freeing up visa requirements have long been punted as a structural reform the state could easily implement to boost the economy.
Ramaphosa pledged to announce a package of fiscal and other measures to shore up the economy. But the government’s finances are stretched to the limit, with the budget deficit already projected to reach an almost-three-decade high, leaving him little room to maneuver.
Initial financing to counter the virus will be come from the National Disaster Fund, while other government programs will have to be pared back to make additional money available, Finance Minister Tito Mboweni told reporters in Pretoria, the capital. He declined to quantify how much the interventions will cost, with the government due to discuss details with business and labor leaders on Monday.
Some respite may come from the central bank, which is due to announce its interest-rate decision on March 19. Of 21 economists in a Bloomberg survey, 12 forecast a 25 basis-point cut, seven predicted a reduction of 50 basis points and two said the repurchase rate would be kept at 6.25%.
What Bloomberg’s Economist Says
The South African economy was already at risk of recession on domestic constraints alone. The impact of the virus outbreak in China and Europe made it more probable. The national disaster measures taken now make it inevitable. The size of the contraction will depend on the policy response.