Background
In June 2020 the International Monetary Fund (IMF) projected global growth will contract by –4.9 percent for 2020. This is a 1.9 percentage points below the World Economic Outlook (WEO) forecast that was predicted in April 2020. The consequence is that the COVID-19 pandemic has had a more negative impact on activity on the first six months of 2020 than anticipated, and the recovery is projected to be more gradual than previously forecast. South Africa economy is now projected to contract by -8 percent for 2020. In 2021 global growth is projected at 5.4 percent and the slight rebound in growth will be driven by China, India and the Euro area.
Sub Saharan Africa is projected to grow with a modest 3.2 percent for 2021. Overall, this would leave 2021 Gross Domestic Product(GDP) some 6.5 percentage points lower than in the pre-COVID-19 projections of January 2020. The adverse impact on businesses and households are particularly severe in developing economies compounded by huge job losses and will translate in severe economic hardships.
South Africa
South Africa recorded a contraction in GDP in the first quarter of 2020, worsening the recession it entered into at the start of 2020.Stats SA report that GDP growth for q1 2020 came in at -2%, marking the third quarter of decline in succession, following drops of 0.6 percent in q3 2019, and 1.4 percent in q4 2019 respectively (see figure 1).
The recent Supplementary Budget Review indicated a real challenge in government finances, with a fiscal deficit of -14.6 percent of GDP and gross debt as percentage of GDP of 81.8 projected for 2020/21 fiscal year. Countries that have gotten Covid 19 under control implemented stringent lockdown regulations for an extended period at the onset and funded the cost to the economy through unconventional monetary policy measures. The New Zealand Reserve Bank decided to implement a Large Scale Asset Purchase programme of government bonds up to $30 billion with diverse maturities to cushion the domestic economy.
Namibia
The GDP declined by -0.8 percent during q1 2020, compared to a decline of 3.3 percent in q1 2019 (see Figure 1). The data reflects only the first three months of 2020, before the nationwide lockdown was fully implemented (27 March 2020).
The Namibian economy faces a dilemma going into the future. On one hand, it faces a possible double digit decline especially with the current Covid-19 outbreak for 2020. On the other hand, the economy has not grown for the past 3 out of the last 4 years (see figure 1). Moodys in May 2020 made the point that the significant contraction in GDP as a result of the coronavirus outbreak will add to the already deteriorating economic environment. The current economic down turn is not the typical business cycle that will recover with an upswing but will need structural reforms to take effect. There is a need for policies to provide stimulus to stimulate demand and direct resources to increase the participation of the majority.
GDP Outlook
The economic cost as a result of the “short-lived” lockdown in industries and business to prevent the spread of Covid-19 is not represented in q1 2020.We expect a much bigger economic contraction in q2 of an average ranging between 9-11 percent for both countries.
The local elimination of Covid19 has put some economies on track for a ‘V-shaped’ bounce back while both South Africa and Namibia are yet to reach their peak of the pandemic. This will put further strain on economic activity and translate in further depressed economic environment coupled with potential loss of lives.
We hope both countries start considering the “unconventional Monetary Policy measures” to stem the further downward spiral.
Figure 1: GDP Namibia vs GDP South Africa 2020 Q1
