The arrival of the Corona virus COVID-19 to South Africa’s shores, as confirmed cases escalate, will only add to SA’s stalled economy, say experts.
The economy shrank by 1.4% in the fourth quarter of 2019 – as consumers remain under pressure. This with an interest rate cut in January, with the possibility of a further rate cut in March (with a COVID-19 fallout to intensify this prospect) – as Moody’s is set to make a call on downgrading SA’s credit rating on 27th March.
“We expect the virus’ impact on the residential property market to be relatively small when compared to its effect on other key sectors,” says Andrew Amoils, Wealth Analyst for New World Wealth. He says sectors expected to be hardest hit by the virus will be “tourism, retail, mining, manufacturing and transport”.
Erwin Rode, CEO of Rode & Associates property consultants also added the virus that has already affected the world economy as productivity suffers – largely due to China’s shutdown – is sure to be “bad for the property market” too.
“In South Africa, it will affect some of our crucial commodity exports. What is bad for the economy, is bad for the residential and non-residential property markets, so it now seems likely that house prices will decline in nominal terms this year.”
“The only good news is the price of oil that has collapsed,” says Rode. A price war has erupted between Saudi Arabia and Russia, with Brent Crude down some 30% a barrel on Monday.
Fuel prices dropped by 19 cents a litre and diesel by 54 cents a litre
on 4 March – but it is expected to be short lived as Finance minister
Tito Mboweni announced an increase in fuel levies for South African motorists during his Budget 2020 speech.
The general fuel levy will be increased by 16 cents a litre for petrol and diesel, while the Road Accident Fund (RAF) levy will also increase by 9 cents a litre for petrol and diesel on 1 April 2020.
Overall, Investec forecasts SA’s economic risk has increased in the face of rate cuts and a poor credit ratings. Covid-19 is now expected to have a much greater impact on global economic growth than previously thought – with the International Monetary fund saying last week “global growth would dip below last year’s rate of 2.9%”.
While Investec’s severe down case for SA includes the impact of a severe global pandemic, it says a number of other factors must be considered as well in the scenario, “which remains an international led scenario impact on SA”. It would reassess the impact once more conclusive data becomes available at the start of April.
“A global recession would necessitate a more severe downwards revision to SA’s expected case economic outlook. Moody’s includes a peer comparison basis in its rating of SA, and so an environment where all countries’ growth rates drop, and the IMF steps in with financial assistance, would likely need to be newly factored into Moody’s considerations.”
“We continue to believe that it will be a very close call whether Moody’s downgrades SA’s credit, but marginally lean towards the chance of no downgrade.”