Fitch sees SA economy contracting 5.5% this year

Ratings agency Fitch said on Friday it expected South Africa’s economy to shrink 5.5% this year, as the coronavirus lockdown batters an economy already in recession.

Fitch downgraded South Africa’s credit rating further into “junk” territory in April, citing the lack of a clear path towards government debt stabilisation and the expected impact of the COVID-19 shock on public finances and growth.

In an outlook on sub-Saharan African sovereigns, Fitch said it projected the fiscal deficit would surge to 14.4% of gross domestic product (GDP) in the current fiscal year, with government debt seen rising to 80.9% of GDP.

“Government debt was already on a sustained upward trajectory before the crisis,” Fitch said.

“Consolidation measures in the February budget relied heavily on re-negotiating a public sector wage agreement that only expires in April 2021, which has so far been elusive.”

The government and public sector trade unions are still locked in a dispute over wage increases that were due to come into force in April. Officials have said they cannot afford the increases agreed as part of a three-year deal in 2018, but unions are trying to force them to pay via the courts.

Africa’s most industrialised economy imposed one of the world’s strictest lockdowns in late March. It was eased from the beginning of June to let people outside for work, exercise or shopping, and allowing mines and factories to run at full capacity subject to health and safety controls.