It never rains but pours in, and for, South Africa. Just as the country is battling to deal with a sudden upsurge of coronavirus infections and deaths thereof in an already flaccid economy, the World Bank said the economy will contract by the lowest margin ever recorded in 100 years.
According to the latest World Bank Global Economic Prospects report for June 2020, the local economy is expected to contract by 7.1% this year – the deepest contraction in a century and 8% weaker than previously forecast. Largely, this is on the back of stringent but necessary domestic containment measures such as the extended nationaal lockdown which, at one time, brought the economy to a standstill.
2021 might be a better year
While the country is yet to experience its peak of the devastating pandemic, there is a silver lining on the horizon. Growth is expected to rebound in 2021. This will be helped in part by the government’s announced 10%-of-GDP fiscal stimulus package to soften the impact of the coronavirus pandemic and help set the stage for a robust recovery.
The recovery could gain further traction if planned structural reforms are implemented, including plans to improve public investment management and to encourage greater private-sector participation in infrastructure development, the World Bank said.
The World Bank warned that even this bleak outlook is subject to great uncertainty and significant downside risks. “The forecast assumes that the pandemic recedes in such a way that domestic mitigation measures can be lifted by mid-year in advanced economies and later in developing countries, that adverse global spillovers ease during the second half of 2020, and that widespread financial crises are avoided.
Cold comfort in a global crisis
South Africa should take comfort in the fact that all economies are facing difficulties in the face of the pandemic. The bank’s baseline forecast for global growth shows a 5.2% contraction in global GDP in 2020.
For emerging markets and developing countries, many of which face daunting vulnerabilities, the World Bank said, it is critical to strengthen public health systems, address the challenges posed by informality, and implement reforms that will support strong and sustainable growth once the health crisis abates.