Coronavirus forces Moody’s to cut SA growth forecast again
The ratings agency cuts its forecast for SA growth to 0.4% down from 0.7%
For the second time in less than a month, Moody’s Investors Service has cut its expectations of SA’s growth, due to the spread of the coronavirus.
Moody’s — the last credit ratings agency to hold SA debt at investment grade — lowered its growth forecast for SA to 0.4% down from 0.7%, as it revised down its expectations across the G20 countries, in the wake of the disease’s spread.
“The global spread of the coronavirus is resulting in simultaneous supply and demand shocks,” Moody’s senior credit officer Madhavi Bokil, said in a report late on Friday afternoon. “We expect these shocks to materially slow economic activity, particularly in the first half of this year.”
In mid-February, Moody’s cut SA’s growth forecast to 0.7% for 2020 citing local challenges, including load-shedding by Eskom, for its decision. Moody’s, however, retained its expectations for SA growth in 2021, at 0.9%.
The virus — which began in Wuhan, China — has wreaked havoc on global markets as fears over supply chain disruptions and negative effects to global growth intensify. SA confirmed its first case in KwaZulu-Natal on Thursday.
The full extent of the economic costs will be unclear for some time, Bokil said. “Fear of contagion will dampen consumer and business activity. The longer it takes for households and businesses to resume normal activity, the greater the economic impact.”
Moody’s is now expecting the global economy to grow by 2.1%, down 0.3 percentage points from its previous forecast. It cut its forecast for China — SA’s largest trading partner and a global manufacturing hub — to 4.8% from its previous estimate of 5.2%.
“While the coronavirus infection rate in China appears to have plateaued and factory activity has slowly resumed, bringing economic activity back up to normal levels will take time,” Bokil said.
“This slow resumption of activity is especially likely in the case of services, which make up slightly more than 50% of China’s economic activity, because individual consumers will likely remain cautious until the outbreak is thoroughly and verifiably contained.”
The outbreak has prompted central banks, including the US Federal Reserve, the Reserve Bank of Australia, and those in the Gulf region, to cut interest rates to address the potential economic fallout from the virus.
Moody’s said the fiscal and monetary policy measures announced by various countries “will likely help limit the damage in individual economies”.
The SA Reserve Bank is assessing the channels through which the coronavirus will impact the SA economy, and “will take appropriate steps” to mitigate the risks it said in a statement.
“The coronavirus will undoubtedly have a significant impact on the global economy. The impact is already starting to be reflected through global supply chains, global logistics and tourism. The financial markets reactions reflect the uncertainty that is facing us,” the Bank said.
“We are currently assessing the channels through which this will impact the SA economy. Based on this assessment, we would take appropriate steps, in accordance with our constitutional mandate, to mitigate the risks to the SA economy.”
While some central banks have held emergency meetings to make a call on rates, Reserve Bank governor Lesetja Kganyago has said that the Bank will not reschedule the meeting of its monetary policy committee, which is set for March 19.
Growing fears about the economic fall out of the virus, come at a time when the economy does not need another blow. Earlier this week, Stats SA revealed that the economy slid into recession in the last quarter of 2019, shrinking by 1.4%.
The economic effects of the virus also pose a risk to the Treasury’s forecasts for growth, particularly after the news of SA slipping into a recession. The Treasury penciled in growth of 0.9% for 2020.