Covid-19: Worst still to come

29 March 2020 - 00:08 By HILARY JOFFE

How low can we go? Economists were scrambling to revise down growth forecasts as SA entered its first day of lockdown on Friday. Estimates were that the economy could contract this year by 6% or more. The best-case scenarios were a contraction of 2%-3%.This is a huge swing from the modest positive growth forecasts of a month ago, before the global impact of the Covid-19 virus and the oil price war. Then economists pencilled in mildly negative numbers, which are now being taken down further as they factor in the impact of an almost total shutdown of the economy that some believe could last longer than 21 days. A deep recession would severely affect employment and incomes and would likely lead to SA's public debt spiralling way beyond the already unsustainable numbers pencilled into last month's budget. Ahead of rating agency Moody's scheduled announcement on Friday evening, most economists were expecting a downgrade to junk status - with downgrades by rivals S&P Global Ratings and Fitch also on the cards, taking SA's rating further into junk territory. With such high levels of uncertainty about how Covid-19 will play out in SA, all that economists could be certain of this week was that their forecasts would prove to be wrong. Most cited "downside risk" even to their increasingly bleak numbers.One of the more pessimistic is Intellidex economist Peter Attard Montalto, who said on Friday that he now expected SA's economy to decline by 6.8% in 2020, with the government having only limited capacity to provide fiscal stimulus. Standard Bank economist Elna Moolman said the economy could contract by 5% this year - much deeper than the recession during the global financial crisis. She expects, however, a 4.6% bounce-back next year. Stanlib economist Kevin Lings has the economy at minus 4.9%, though Absa economist Peter Worthington is still at minus 3%, with downside risk.The recession forecasts come as SA's organised business community gears up to launch a new Solidarity Fund, which was announced by President Cyril Ramaphosa on Monday evening. Companies have made significant contributions to the private sector-led fund, which is to be launched tomorrow. It will focus on a campaign to build national unity and encourage South Africans to help each other during the crisis. It will also augment government efforts in the health space and on helping some of the most vulnerable communities.Amid concerns that many businesses and households will struggle to service their loans and will face bankruptcy in the lockdown, SA's banking industry this week promised that it would go out of its way to assist customers in good standing who were in financial distress because of the Covid crisis. But it warned that it would do this only so long as the banking system remained financially sound - and would have to approach the government for fiscal support to assist customers if this reached the point where the soundness of the system was at risk. "Customers in good standing . who experience financial challenges as a result of Covid-19 should contact their banks who will, on a case-by-case basis, assist with appropriate solutions," the Banking Association said. The solutions could include payment deferrals, debt restructuring or the provision of bridging finance for SMEs. Particular attention would be given to the most vulnerable sectors, and banks are looking at ways to collaborate wherever possible to assist customers who may have more than one bank account. Banking Association CEO Cas Coovadia urged customers to contact their primary bankers sooner rather than later if they were feeling financially stressed. The banks will waive Saswitch fees so that any customer can use any bank's ATM without additional charges. It's also expected that about 50% of all bank branches might close until the end of the lockdown after social grants have been paid at the end of this month, but the banks will together ensure that there is one bank open in every area to serve customers.The banks, which count as essential services, were last weekend given an exemption under the competition legislation, enabling them to work together on plans to ensure that customers will be able to access financial services during the lockdown. The banks will also help those in distress. Ahead of the lockdown, companies such as Mr Price and Edcon have already disclosed that sales have plummeted since the Covid crisis began, with Edcon warning it cannot pay suppliers and with business rescue looming once more. Global forecasts were also being revised down this week, with many - the International Monetary Fund included - now predicting negative growth for the global economy. The IMF has said 80 countries have asked it for assistance.

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