May 23, 2020 / 9:17 AM / 3 days ago

S&P forecasts South Africa's economy to shrink 4.5% in 2020

A view shows the Standard & Poor's building in New York's financial district February 5, 2013. REUTERS/Brendan McDermid/File Photo

JOHANNESBURG (Reuters) - S&P Global Ratings on Friday said it projects South Africa’s economy to shrink by 4.5% this year as a result of the COVID-19 pandemic that has impacted production and consumption.

In April, S&P downgraded South Africa’s credit rating further into non-investment-grade territory, saying COVID-19-related pressures would have significant adverse implications for the country’s already-ailing economy and for tax revenues.

It lowered its long-term foreign-currency rating on South Africa to “BB-minus” from “BB” and its long-term local-currency rating to “BB” from “BB-plus,” with a stable outlook.

“COVID-19 will weigh heavily on GDP growth given the strict domestic lockdown that has shut down much of the economy, the markedly weaker external demand outlook, and tighter credit conditions,” S&P said. “As a result, we now project the economy to shrink by 4.5% this year.”

The ratings agency projects growth of 3.5% for 2021.

South Africa’s lockdown has entered its ninth week, leaving many businesses and individuals struggling without income in the recession-hit economy.

S&P said the weaker macroeconomic environment would also weigh heavily on fiscal revenues, projecting that the fiscal deficit would widen to 13.3% of gross domestic product in 2020 —the widest in the country’s democratic history.

S&P estimates net debt levels would rise to over 75% of GDP by the end of 2020.

“Our anticipation of an only tepid economic recovery means that public financing needs will likely remain elevated throughout the forecast period,” S&P said. “As a result, the net debt-to-GDP ratio is unlikely to stabilize within this timeframe, rising to 85% by 2023, raising questions around debt sustainability.”

Reporting by Olivia Kumwenda-Mtambo; Editing by Leslie Adler

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