The SA Daily
30 March 2020
Junk and outbreak weigh down SA
- After holding fire for some time, Moody’s last Friday downgraded the SA sovereign to non-investment grade because of SA’s sustained economic weakness, further fiscal deterioration and government’s persistent lack of economic reforms; we however had already incorporated this downgrade into our economic forecasts.
- The rand and bonds are already discounting the Moody’s downgrade. However, there will be some reaction this week as well as at the time of WGBI expulsion (pushed out to end-April, from end-Mach), especially in the context of disrupted global financial markets. As commodity prices will remain low amid the global growth slowdown and specifically that of China, commodity-exporting countries’ currencies will take a further knock.
- Indeed, China’s manufacturing PMI slumped to 35.7 pts in February 2020, from a 3-month average of 50.1 pts in January 2020, as the coronavirus outbreak disrupted global supply chains and manufacturing. However, Chinese firms have gradually resumed production, with expectations now for the manufacturing PMI to have recovered somewhat to 44.8 pts in March 2020.
- The SA manufacturing PMI had languished below 50 pts even prior to the outbreak due to domestic power cuts, weak domestic demand and higher input costs. With SA now at the very beginning of a three-week lockdown, production and other economic activity will be even slower. We forecast a GDP contraction of -5.0% for 2020, with the risks heavily to the downside. At this stage, we forecast +4.6% for 2021 off what will be a very low base.
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