- The World Bank has forecast the SA economy to recover with growth of 3.3%, compared to a steep contraction of 7.8% estimated for 2020.
- According to the bank, SA suffered the "most severe outbreak of the pandemic" in the sub-Saharan Africa region as lockdown restrictions brought the economy to a standstill.
- The World Bank projects the global economy to expand by 4%, but the deployment of Covid-19 vaccines and investment are needed to sustain the recovery.
The World Bank projects SA's economy to rebound by 3.3% in 2021, with the global economy set for a recovery of 4%, following the harsh blows of the Covid-19 pandemic.
The bank on Tuesday issued its January 2021 Global Economic Prospects report, in which it provides its economic outlook for the year. The improvement in global growth, following the contraction of -4.3% in 2020, is largely dependent on the widespread rollout of Covid-19 vaccine throughout the year, the bank noted in its report.
The World Bank emphasised that countries need to focus on controlling the spread of Covid-19, ensure the rapid and widespread deployment of Covid-19 vaccines and encourage investment. It has put forward a downside scenario where global growth would be limited to 1.6% if infections continue to rise and the vaccine rollout is delayed. An upside scenario where there is a rapid vaccination process and successful control of the pandemic could see growth of nearly 5%.
Domestically, SA plans to have 10% of the population to receive vaccines via the Covax consortium, by the second quarter of the year, according to Health Minister Zweli Mkhize. Government targets vaccinations for 67% of the population by the end of the year.
According to its report, the World Bank estimates the SA economy to have contracted by 7.8% for 2020, in line with Treasury's estimate. By comparison, the Reserve Bank expects the economy to have contracted by 8% in 2020 and to rebound by 3.5% in 2021.
The World Bank noted that SA's economy was already on a "weak footing" before the pandemic and experienced the most "severe outbreak" of Covid-19 in the Sub-Saharan Africa region.
The SA government implemented the lockdown in March 2020 to slow the spread of the virus and prepare its health system. SA's lockdown was regarded as one of the strictest in the world, it brought the economy to a standstill for five weeks during the second quarter – only services and businesses deemed as essential could continue operating during that period. It led to the loss of 2.2 million jobs during the second quarter and the economy contracted by an unprecedented 16.4% on a non-annualised basis.
The country in 2020 also suffered credit downgrades further into junk status, by ratings agencies Moody's and Fitch.
Sluggish rebound for region
As for the Sub-Saharan Africa region, the World Bank estimates that it contracted by 3.7% in 2020 due to the impact of the lockdowns on economic activity.
"As a result, per capita income shrank by 6.1% in 2020, setting average living standards back by at least a decade in a quarter of Sub-Saharan African economies," the World Bank said. Countries which were worst affected are those which experienced large domestic outbreaks, economies reliant on tourism, commodity exports and oil exports, the bank noted.
South Africa's peer, Nigeria is estimated to have suffered a 4.1% economic contraction in 2020 – with the pandemic impacting all its sectors, the World Bank noted. It is expected to achieve growth of 1.1% in 2021.
The World Bank forecasts a "sluggish" rebound for the region of 2.7% growth in 2021. The rebound is likely to be stronger among agricultural commodity exporters, it noted. Oil exporters like Angola, Chad and Ghana are still in for a difficult year as oil prices are still below 2019 levels, the report indicated. Furthermore, persistent Covid-19 outbreaks are likely to negatively impact recovery.
Recoveries in trading partners such as Europe (3.6% following a -7.4% decline), China (7.9% following growth of 2%) and the US (3.5% following a contraction of -3.6%) however, are expected to influence the region's rebound, the World Bank said. These economies are to be bolstered by the development and rollout of vaccines as well as additional fiscal stimulus.
Challenges to vaccine distribution
In contrast, challenges to vaccine distribution is expected to pose a risk to Sub-Saharan Africa economies. These challenges include poor transport infrastructure and weak health systems capacity.
It has been reported that vaccines should be kept at certain temperatures, which would be costly for some countries. Domestically retailers such as Shoprite and Pick n Pay have said they are willing to assist in the distribution of vaccines, to address logistical challenges.
Other constraints to growth include natural disasters, and rising government debt which has been estimated to have increased to 70% of GDP in 2020, according to the World Bank.
"Lasting damage of the pandemic could depress growth over the long term through the chilling effects of high debt on investment, the impact of lockdowns on schooling and human capital development, and weaker health outcomes," the World Bank said.
Noting mounting debt levels brought on by the pandemic, World Bank Group president David Malpass called for policy interventions, among these being debt reduction for countries in debt distress which would also aid efforts to make them more attractive for investment.
"Left unaddressed, the problem of unsustainable debt, and restructurings that do too little, will delay vital recoveries, especially in the poorest countries," said Malpass.
He added that countries should make the "right" investments – toward greener and more equitable development.
"Investing in green infrastructure projects, phasing out fossil fuel subsidies, and offering incentives for environmentally sustainable technologies can buttress long-term growth, lower carbon output, create jobs, and help adapt to the effects of climate change," said Malpass.