SA economy will shrink 5.5% this year, predicts Fitch

Fitch, one of the financial world's big-three ratings agencies, has forecast that the South African economy will contact by 5.5% this year due to the pandemic battering an already weakened economy.


The announcement was made on Friday, 12 June as part of an outlook on sub-Saharan African sovereign debt.

Government debt will rise to 80.9% of GDP


Fitch said it projected the fiscal deficit would surge to 14.4% of gross domestic product (GDP) in the current fiscal year. This would mean that government debt would rise to 80.9% of GDP.


"Government debt was already on a sustained upward trajectory before the crisis," Fitch said in its statement.


"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."


While the figure of 80.9% may seem high, it is not by world standards. Many countries that would otherwise be regarded as 'well run' have government debt at over 100% of GDP. Examples provided by Trading Economics include Japan, Italy, Singapore, Portugal and the US.

Public sector unions still want their increase


Fitch noted in its review that public sector trade unions and the SA government remain locked in a dispute over wage increases that were due to come into force in April. Government has said it cannot afford the increases agreed as part of a three-year deal in 2018. Unions have now gone to court over the matter.


Reporting the Fitch forecast for South Africa, news agency Reuters noted: "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."

S&P has previously predicted shrinkage of 4.5%


In a separate analysis last month, ratings agency S&P said it expected South Africa's economy to shrink 4.5% this year due to the drop in production and consumption caused by the pandemic.


The agency said in a statement on 22 May that COVID-19 would 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.