South Africa Heads For ‘Deepest Contraction In Century’ As Pandemic Triggers Worst Global Recession Since War

9 June 2020 – A new World Bank report warns that the South African economy will experience its deepest economic contraction in a century this year, with the country’s gross domestic product (GDP) forecast to slump by 7.1% on the back of “stringent but necessary” Covid-19 containment measures.

The bank’s ‘2020 Global Economic Prospects’ report, released on June 8, notes that the updated forecast represents a downward revision of 8% relative to its previous growth estimate for South Africa, released ahead of the pandemic.

The report’s forecast is less than some recent domestic estimates, but more or less in line with the South African Reserve Bank’s (SARB’s) most recent expectation of a 7% contraction for 2020.

Finance Minister Tito Mboweni is anticipated to provide an update to the National Treasury’s forecast when he releases a special adjustment Budget on June 24.

Other commentators, including Business for South Africa, are warning that South Africa’s GDP could shrink by between 10% and 16.7%. This despite the R500-billion support package unveiled by government, as well as the various monetary policy measures taken by the SARB, including combined interest rate cuts of 275 basis points since the start of the crisis and an asset purchase programme.

The World Bank expects South Africa’s growth to rebound in 2021, helped in part by the government’s announced ten percent-of-GDP fiscal stimulus package to soften the impact of the pandemic and help set the stage for a robust recovery.

The report projects that the South African economy will expand by 2.9% in 2021 and says 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.

“However, prospects for faster growth over the medium term are likely to be constrained by needed fiscal tightening and will continue to be dampened by persistent power-supply disruptions and the need for extensive maintenance and repair work on the national grid,” the authors add.

The dismal outlook for South Africa comes against the backdrop of the bank’s forecast that the global economy will shrink by 5.2% this year, representing the deepest recession since the Second World War.

“In all, the pandemic is expected to plunge a majority of countries into recession this year, with per capita output contracting in the largest fraction of countries since 1870,” the reports states.

Under the report’s baseline forecast global growth is expected to rebound to 4.2% in 2021, as advanced economies grow 3.9% and emerging and developing economies bounce back by 4.6%.

The outlook is highly uncertain, however, and the report’s downside scenario involves the global economy shrinking by as much as 8% this year, followed by a sluggish recovery in 2021 of just over 1%. Such a scenario could arise should the pandemic be more protracted than is currently assumed and should there be further financial upheaval and a retreat from global trade and supply linkages.


Economic activity across sub-Saharan Africa is expected to contract by 2.8% in 2020, the deepest on record, while per capita GDP is anticipated to fall even more sharply and push millions in the region back into extreme poverty.

Fiscal deficits in the region are projected to deteriorate sharply in 2020, doubling on average to roughly 5% of GDP.

Regional growth could recover to 3.1% in 2021, but such a recovery would be premised  on the pandemic fading in the second half of the year, that domestic outbreaks of the virus follow a similar path and that growth in major trading partners rebounds.

“Risks are tilted firmly to the downside. A longer lasting and more severe pandemic would trigger an even deeper recession in the region and have devastating effects on the health and well-being of the region’s population.”

The effects of the pandemic are expected to markedly increase the region’s vulnerability to debt distress, and these strains will be compounded by the increased borrowing necessary to fund larger deficits.

Severely constrained government resources could lead to a curtailment of critical public services and there are also growing concerns that the pandemic may cause a food-security crisis, as border closures and trade restrictions disrupt trading in food and agricultural products.

“The region’s large numbers of displaced people could complicate efforts to prevent the spread of Covid-19. In addition, there is the risk of social unrest as governments prioritise efforts to thwart the virus and peacekeeping efforts lose momentum. Rising unemployment, falling incomes, and potential shortages of essential items could lead to instability and weigh on activity well after the pandemic has faded.” Source (Engineering News)