Sarb expects economy to shrink 40.1%

South Africa’s economy probably contracted by an annualised 40.1% in the second quarter, according to central bank forecasts.

The monetary policy committee used that estimate for the quarterly drop in gross domestic product at its July meeting, where it cut the benchmark interest rate by 25 basis points, the Pretoria-based Reserve Bank said in an emailed response to questions. That compares with a forecast for a 32.6% contraction shown in its June 29 annual report and will be the biggest decline since at least 1990.

The contraction in the second quarter is mainly due to strict lockdown measures to contain the coronavirus that resulted in plunging production and demand for goods and services, and a decrease in income and employment levels, the central bank said. Supply chains were disrupted as the nation’s trading partners were also impacted by the pandemic.

South Africa shut down industries from March 27 to limit the spread of the virus, with almost all activity except essential services halted for five weeks. The restrictions were eased from May 1, allowing the phased reopening of some businesses and sectors. Still, many companies have closed down permanently and some of those that resumed operations are still limited as to which services they may offer.

The Reserve Bank said in July that the economy may contract 7.3% this year. The projections used at MPC meeting that month show GDP will expand on a quarterly basis in the three months through September, which means the technical recession will be over after four quarters.