Treasury and Reserve Bank to discuss response to Covid-19
Technical teams have met to discuss the issue, and Treasury is likely to adjust its forecasts on the basis of the IMF’s revised global growth forecasts
The Treasury and the SA Reserve Bank are grappling with the effects of the coronavirus on the economy and what kind of response should be implemented to deal with it, Treasury director-general Dondo Mogajane said on Friday.
He was questioned about what effect the disease, which has spread around the world, would have on global growth and that of the local economy during a meeting of parliament’s two finance committees. Mogajane and other Treasury officials appeared before the committees to respond to issues raised during public hearings on the 2020/2021 budget tabled in parliament last week by finance minister Tito Mboweni.
SA experienced its first case of coronavirus in KwaZulu-Natal on Thursday. The disease is expected to see a contraction in global growth.
Mogajane said technical teams from the Treasury and the Bank met on Thursday to discuss the issue. He said finance minister Tito Mboweni and Bank governor Lesetja Kganyago will meet on Friday afternoon to deal with the effect of the recession and that of the coronavirus, and the responses necessary to deal with it.
Mogajane also considered it likely that the president’s economic advisory panel, which is meeting on Friday, would also discuss the issue.
The economy went into a recession in the second half of 2019, contracting 1.4% in the fourth quarter following a 0.8% contraction in the third quarter. Treasury has forecast growth of 0.9% for this year, 1.3% in 2021 and 1.6% in 2022, but Treasury acting chief director for modelling and forecasting Boipuso Modise told MPs that the coronavirus epidemic carries downside risks to these forecasts.
Modise said the budget forecasts did not take into account things such as a potential downgrade by Moody’s Investors Services and the effects of the coronavirus on growth. “Our forecasts are policy-neutral. We don’t build anything into the forecast that hasn’t happened yet. We provide scenarios that try to indicate what could happen, if certain risks materialise, to the forecasts.”
Modise said it is too soon to say what the coronavirus would mean for the SA economy but it is clear that it poses a significant downside risk. The International Monetary Fund (IMF) has indicated that the disease could reduce its global growth outlook by one percentage point this year, and the Organisation for Economic Co-operation and Development (OECD), a group of 34 member countries that discuss and develop economic and social policy, has decreased its forecast by half a percentage point.
The IMF has also indicated that it is exploring more severe scenarios on the negative effect of the virus on growth.
Modise noted that global purchasing manager’s indices had come down this year with China’s hitting a historical low in February. Global manufacturing output has also reached low levels.
“Collectively, this means that we have significant risks that inform our view on the external environment’s support for growth,” she said noting that this was in contrast to the assumptions expressed in the Budget Review that forecast a more optimistic and supportive global environment, which was becoming significantly more risky as the impact of the coronavirus took hold.
The Treasury would, accordingly, adjust its forecasts on the basis of the IMF’s revised global growth forecasts. It has estimated that the combined effect of these risks will result in a contraction of growth in 2020 of 0.5% and growth of 1% in 2022, a significant downward revision should these risks materialise.