Multinational investment bank, BNB Paribas said in a research note on Thursday that it expects South Africa’s economy to plunge by 4% this year on the back of the devastating Covid-19 virus.
This presented a sharp revision after the bank earlier in the year said the country’s economy will contract by 1.2%.
Analysts from PNB Paribas in a research note said the much sharper growth contraction in 2020 translates into larger headaches for government revenues, fiscal deficits and debt.
“The Covid-19 pandemic is likely to severely hurt supply and demand channels. The latter particularly exacerbated by a three-week lockdown, which we deem a minimum requirement,” the bank said.
“We expect the Treasury to revisit its fiscal framework in the coming months; a budget deficit of 9.1% of GDP, for FY (financial year) 2020-21 is now our base case.”
The South African Reserve Bank at its last Monetary Policy Meeting cut growth forecast from a growth of 0.4% it predicted in January to a contraction of 0.2% as the impact of COVID-19 and erratic power supply hurt the domestic economy.
BNP Paribas’ revised forecasts have far-reaching implications for fiscal deficit and debt trajectories.
The Paris-headquartered bank now expects revenues to undershoot the treasury’s February budget forecasts by R245bn cumulatively over the coming three years.
Moody’s last week downgraded South Africa’s credit rating to junk status, citing government’s runaway debt as one of the big reasons.
