This archive report was first published on 14 July 2020.
As the COVID-19 pandemic continues to ravage South Africa, the country's economy is facing a grim outlook. According to ratings agency S&P Global Ratings, South Africa's economy is likely to shrink by 6.9% in 2020, a more severe contraction than initially projected.
South Africa has the highest number of confirmed COVID-19 cases in Africa, with over 270,000 infections and 4,000 deaths. The country is now recording the fourth-largest daily increase in new cases worldwide, with over 12,000 cases reported daily.
“The pandemic situation in the country has worsened since our previous macroeconomic update, leading to a further hit to confidence, which was already low before the pandemic, amid lack of growth and concerns about the fiscal trajectory,” S&P Global Ratings said in a report.
South Africa's debt has already been rated below investment status, or junk, by the three main ratings firms: S&P Global Ratings, Moody's, and Fitch. S&P Global Ratings cut its rating one notch to the third tier of non-investment grade, BB-, in April, with a stable outlook.
While S&P Global Ratings' growth forecast is more optimistic than National Treasury's prediction of a 7.2% contraction this year, the ratings agency warned that the government's relief package may only partially mitigate the economic toll. The package, worth 500 billion rand ($28.86 billion) or 10% of South Africa's GDP, is aimed at cushioning the economic blow of the pandemic.
“The sizeable fiscal package will only partially mitigate the economic toll, but coupled with lower revenues, will lead to a significant increase in government debt, further impairing public finances,” S&P Global Ratings said.
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