SA: drop in virus cases no silver bullet for economy
New coronavirus cases in South Africa appear to be dropping off in a sign that the authorities are managing to curb the outbreak but, even if this leads to a further easing of containment measures, the economic recovery will be slow and bumpy.
While South Africa still has the fifth highest number of total coronavirus cases in the world, daily new cases have dropped from 13,000 in mid-July to below 3,000. Admittedly, testing has also declined in recent weeks but the share of tests coming back positive looks to have inched down, suggesting progress in bringing the virus under control.
Against this backdrop, policymakers are leaning towards loosening containment measures. Senior government officials have proposed this week to ease the lockdown from level three to two, which would allow, among others, the retail and manufacturing sectors to fully re-open.
Figures released this week showed just how deep an economic hole South Africa is in. Hard activity data for June indicate that the country suffered one of the largest falls in output in Q2 anywhere in the world. And while activity has rebounded since April, there are worrying signs that the recovery stalled in recent weeks.
If the authorities further loosen restrictions, this could resuscitate the recovery. But we think that there are plenty of bumps on the road ahead. Renewed power cuts, that may last beyond this week as the state-owned electricity firm Eskom struggles with breakdowns, will weigh on activity. And further ahead, the government envisions harsh fiscal austerity from next year, that will hold back demand.
Pressure mounting on the SARB
Monetary support in South Africa will probably be more forthcoming in the months ahead, but not the kind that some politicians are urging the Reserve Bank (SARB) to dole out. Pressure is growing on the SARB to do more to support the economy and finance the government, by launching a large-scale government bond buying programme for instance. Such proposals are unlikely to shape up in the near future but, if and when they do, they are likely to result in higher inflation and sharper falls in the rand.
Insecurity in Mozambique: gas exports on the line
This week’s militant attack in Mozambique’s far north underscores the persistent security threat to the country’s huge gas projects. Islamist militias seized the port city of Mocímboa da Praia, a key logistics hub for nearby offshore gas investments currently under development.
Chart 1: Mozambique Exports (USD bn) |
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Sources: IMF, Capital Economics |
The stakes are certainly high. Investments tied to the LNG megaprojects are worth $60bn, four times the country’s entire economic output in 2019. The IMF projects that Mozambique’s exports will jump by as much as 35% y/y from 2023 as gas projects come onstream. (See Chart 1.) Delays triggered by security (or other) concerns pose a downside risk to our otherwise rosy medium-term outlook for the country.
The week ahead
Nigerian inflation figures for July are likely to show that the headline rate edged up, from 12.6% y/y in June to 13.1% y/y last month.
Economic Diary & Forecasts
Date | Country | Release/Indicator/Event | Time (BST) | Previous* | Median* | CE Forecasts* | |
17th Aug |  | Nga | CPI (Jul) | – | (+12.6%) | – | (+13.1%) |
19th Aug |  | Nam | Interest Rate Announcement (Aug) | – | 4.25% | – | 4.25% |
 | Zam | Interest Rate Announcement (Aug) | – | 9.25% | – | 9.25% | |
20th Aug |  | Bot | Interest Rate Announcement (Aug) | – | 4.25% | – | 4.25% |
 | Moz | Interest Rate Announcement (Aug) | – | 13.25% | – | 13.25% | |
Also expected during this period: | |||||||
13th– 20th | | Bot | CPI (Jul) | – | (+0.9%) | – | (+1.1%) |
16th – 23rd | | Nam | CPI (Jul) | – | (+2.1%) | – | (+2.4%) |
17th – 31st |  | SA | Unemployment Rate (Q2) | – | 30.1% | 35.0% | – |
18th – 24th |  | Mau | Interest Rate Announcement (Aug) | – | 1.85% | – | 1.85% |
Selected future data releases and events | |||||||
26th Aug | | Nga | GDP (Q2) | – | (+1.9%) | – | – |
| SA | CPI (Jun) | (09.00) | +0.5%(+2.2%) | – | – | |
27th Aug | | Zam | CPI (Aug) | – | (15.8%) | – | – |
28th Aug | | SA | Budget (SAAR, Jul) | (13.00) | -22.3bn | – | – |
31st Aug |  | Uga | CPI (Aug) | – | (+4.7%) | – | – |
 | Ken | CPI (Aug) | – | +0.1%(+4.4%) | – | – | |
1st Sep | | SA | Absa Manufacturing PMI (Aug) | (10.00) | 51.2 | – | – |
3rd Sep | | Ken | Markit/Stanbic Bank PMI (Aug) | (08.30) | – | – | – |
| SA | Electricity Production (Jul) | (12.00) | (-5.8%) | – | – | |
7th Sep | | Mau | CPI (Aug) | – | (1.5%) | – | – |
8th Sep | | SA | GDP (Q2, q/q(y/y)) | (10.30) | -2.0%(-0.1%) | – | – |
10th Sep | | SA | Current Account (Q2, ZAR) | (10.00) | +70bn | – | – |
| SA | Mining Production (Jul) | (10.30) | – | – | – | |
| SA | Manufacturing Production (Jul) | (12.00) | – | – | – | |
Also expected during this period: | |||||||
4th Sep– 11th Sep | | SA | SACCI Business Confidence (Aug) | – | – | – | – |
4th – 11th | | Nga | Trade Balance (Q2, NGN) | – | -139.0bn | – | – |
6th – 17th | | Ken | GDP (Q2, q/q(y/y)) | – | (+4.9%) | – | – |
7th – 25th | | Nga | CPI (Q2, USD) | – | -4.9bn | – | – |
9th – 16th |  | Tan | CPI (Aug) | – | (3.3%) | – | – |
10th – 17th | | Nam | GDP (Q2, q/q(y/y)) | – | (-0.8%) | – | – |
10th – 17th | | Bot | GDP (Q2, q/q(y/y)) | – | (2.6%) | – | – |
11th – 18th | | Uga | GDP (Q2, q/q(y/y)) | – | (1.8%) | – | – |
11th – 18th | | Bot | CPI (Aug) | – | – | – | – |
*m/m(y/y) unless otherwise stated Sources: Bloomberg, Capital Economics | |||||||
Main Economic & Market Forecasts
Table 1: GDP & Consumer Prices (% y/y) | ||||||||||
Share of World (1) | 2009-18 Ave. | GDP | Inflation | |||||||
2019 | 2020f | 2021f | 2022f | 2019 | 2020f | 2021f | 2022f | |||
Nigeria | 0.86 | 4.4 | 2.2 | -5.5 | 3.5 | 3.0 | 11.4 | 13.0 | 12.5 | 12.0 |
South Africa | 0.57 | 1.5 | 0.2 | -11.0 | 4.5 | 2.5 | 4.1 | 3.0 | 3.0 | 3.3 |
Ethiopia | 0.17 | 9.7 | 9.0 | 2.5 | 8.0 | 9.0 | 15.7 | 19.0 | 14.0 | 10.0 |
Ghana | 0.15 | 7.0 | 6.5 | 0.0 | 6.5 | 6.0 | 8.7 | 10.0 | 9.0 | 8.0 |
Angola | 0.14 | 2.4 | -0.3 | -6.0 | 3.0 | 2.0 | 17.3 | 22.5 | 20.0 | 17.5 |
Kenya | 0.14 | 5.6 | 5.6 | 0.5 | 5.5 | 6.5 | 5.2 | 5.0 | 5.0 | 5.0 |
Tanzania | 0.14 | 6.5 | 5.6 | 1.5 | 6.0 | 6.0 | 3.4 | 4.0 | 5.0 | 4.5 |
Côte d’Ivoire | 0.08 | 6.1 | 7.5 | 1.0 | 7.0 | 7.0 | 0.8 | 2.0 | 1.0 | 1.0 |
Uganda | 0.07 | 5.3 | 6.7 | 1.0 | 6.0 | 5.5 | 2.9 | 4.5 | 5.5 | 6.0 |
Zambia | 0.05 | 5.6 | 1.5 | -4.5 | 3.5 | 4.0 | 9.1 | 15.0 | 11.5 | 10.0 |
Mozambique | 0.03 | 3.7 | 2.2 | 1.0 | 5.0 | 4.0 | 2.8 | 3.5 | 4.0 | 4.0 |
Botswana | 0.03 | 3.7 | 3.5 | -6.5 | 4.0 | 3.5 | 2.8 | 2.0 | 2.5 | 3.0 |
Rwanda | 0.02 | 7.2 | 9.4 | -2.5 | 10.0 | 9.0 | 2.4 | 8.0 | 5.5 | 5.0 |
Mauritius | 0.02 | 3.7 | 3.5 | -10.0 | 6.0 | 4.5 | 0.4 | 2.5 | 3.0 | 3.5 |
Namibia | 0.02 | 3.4 | -1.4 | -5.5 | 4.0 | 3.0 | 3.7 | 2.5 | 3.5 | 3.5 |
Sub-Saharan Africa | 2.5 | 4.2 | 2.9 | -4.8 | 4.7 | 4.1 | 8.4 | 9.5 | 8.8 | 8.1 |
Sources: Refinitiv, National Sources, Capital Economics. (1) % of GDP, 2019, PPP terms (IMF estimates). | ||||||||||
Policy Rate | Latest (14th Aug.) | Last Change | Next Change | Forecasts | ||
End 2020 | End | |||||
Nigeria | MPR | 12.50 | Down 100bp (May ’20) | Down 50bp (Sep. ’20) | 12.00 | 11.50 |
South Africa | Repo Rate | 3.50 | Down 25bp (Jul ’20) | Down 25bp (Sep ’20) | 3.00 | 3.00 |
Angola | BNA Rate | 15.50 | Down 25bp (May ’19) | Down 75bp (Q3 ’21) | 15.50 | 14.00 |
Kenya | Central Bank Rate | 7.00 | Down 25bp (Apr ’20) | None on horizon | 7.00 | 7.00 |
Ghana | Policy Rate | 14.50 | Down 150bp (Mar ‘20) | Down 100bp (Q2 ’21) | 14.50 | 13.50 |
Uganda | Central Bank Rate | 7.00 | Down 100bp (Jun ’20) | None on horizon | 7.00 | 7.00 |
Sources: National Sources, Capital Economics | ||||||
Table 3: Key Market Forecasts | |||||||||
Forecasts | Forecasts | ||||||||
Currency | Latest | End 2020 | End 2021 | Stock Market | Latest (14th Aug.) | End 2020 | End | ||
Nigeria | NGN (Official) | 379 | 400 | 400 | NGSE | 25,200 | 25,500 | 30,000 | |
NGN (Nafex) | 387 | 450 | 450 | ||||||
South Africa | ZAR | 17.4 | 16.0 | 16.5 | JALSH | 57,001 | 59,425 | 71,300 | |
Angola | AOA | 584 | 625 | 625 | n/a | – | – | ||
Kenya | KES | 108 | 110 | 115 | NSE 20 | 1,744 | 2,300 | 2,700 | |
Ghana | GHS | 5.7 | 6.0 | 6.1 | GSECI | 1,876 | 2,000 | 2,300 | |
Uganda | UGX | 3,665 | 3,900 | 4,000 | UGSE | 1,200 | 1,600 | 1,800 | |
Sources: Bloomberg, Capital Economics | |||||||||
Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com