Covid-19

The shrinking tax base and growing public expenditure heightens the possibility of the country falling into a debt trap, he says.

Dr Cronje also assesses the validity of the ‘Second Wave’ thesis and the consequences for the global economy.

Government plans to introduce a basic income grant to offset the social and economic impact of the lockdown will put even more pressure on the already strained fiscus. Government may make a move on private pensions to finance the grant programme, he argues.

Although the global economy appears to be bouncing back after Covid-19, Dr Cronje highlights four risks which may derail this recovery.

In this paper we seek to estimate the likely trajectory of the coronavirus SARS-CoV-2 and the disease it causes – Covid-19 – on the world and South Africa.

Specifically, we seek to address how long the pandemic will last, what its effects on people and their health will be, what its economic ramifications will be, and what it will take for South Africa to successfully endure the pandemic.

This is to guide decision makers as to the likely trajectory of the virus and allow them to test the robustness of the strategies they have put in place to mitigate the effects of the virus.

As GDP declined by 2% in Q1 2020, South Africa’s recession continued for the third consecutive quarter under President Cyril Ramaphosa. Further contractions of over 30% are expected in Q2 as a consequence of the government-imposed Lockdown.

This comes amidst signs of a robust post-Covid-19 global recovery driven by gradual re-opening in the developed world.

Mahlobo also discusses the prospects for reform in South Africa’s electoral system, as well as recent polling which suggests high demand for deregulation of the labour market.

On the international front, Dr Cronje notes that R remains below 1 for much of Europe, America, and Asia, signalling the early stages of a global recovery.

Beyond Covid-19, Dr Cronje highlights the restrictions on Hong Kong’s autonomy by Beijing, as well as growing Russian influence in Libya.

Premium subscribers are encouraged to schedule an online briefing with the CRA team to discuss the latest policy developments and attendant risks.

Globally, Dr Cronje observes that the continued posturing between the USA and China will be tempered by both nations’ interdependent trade relationship.

Expect a stuttering economic re-opening in Europe and the UK if Covid-19 reproductive rates remain below 1.

Domestically, Dr Cronje highlights the recent statements made by President Ramaphosa in favour of “Radical Economic Transformation”  as well as the isolation of the Finance Minister within the cabinet.

The report provides the latest data on economic growth estimates, trade and investment volumes, as well as an analysis of the fiscal and monetary policy responses to the crisis.

Mahlobo notes that the reform faction of the ANC remains a minority, with the securocrats and ideologues controlling the balance of power.

Internationally, Mahlobo highlights the risk of South Africa’s foreign policy stances undermining longer term access to western funding.

Mahlobo notes that the weakness of South Africa’s stimulus position, combined with the flaws in the new lockdown model could see a major crisis in which public confidence in the government collapses just as the South African infection curve escalates and millions of people are forced to come to terms with deepening impoverishment.

On South Africa, Dr Cronje discusses the growing likelihood of increased stimulus spending and highlights the prospect of money-printing as a medium-term risk.

Dr Cronje also reflects on the risks attendant to a premature re-opening of South Africa’s schools, which, he argues, would undermine much of the effect of the lockdown to date.

David was interviewed by Cyrus Rogers of the Covid-19 Chronicles.

Dr Cronje also provides projections of Covid-19 mortality estimates based on various case fatality rates (from 0.5% on the lower end to 2% on the top end). He argues that without much improved levels of testing, analysts and policy makers alike are effectively driving blind in their response to the pandemic.

While there may be relative upsides beginning to emerge internationally, Dr Cronje’s assessment of South Africa’s recovery prospects are more downbeat as isolation protocols falter and the economic impact of the lockdown begin to be felt.

The report is divided into four sections:

• Overview of the pandemic globally and its domestic effects
• An analysis of the social profile of South Africa, including demographics and living conditions
• A diagnostic of SA’s current healthcare resources, personnel and infrastructure
• The economic impact of the crisis and the consequent fiscal and monetary responses

Dr Cronje also looks beyond the current crisis to assess SA’s economic outlook post-Covid-19. Last week’s Moody’s downgrade will hinder recovery efforts, and will likely result in further ZAR weakening.

In this report, the CRA team has identified fifteen key driving forces that will shape the development of the crisis. These forces are ranked by relative impact and uncertainty in order to develop a series of scenarios for the pandemic and the global response.

The CRA will continue to work on and refine these scenarios and updated versions will be published, as well as explicit policy proposals for government and the private sector to pursue.

Clients of the CRA should schedule online briefings for our analysts to explain these scenarios and how they will come to affect their industry and society.