SA faces 5 tough years – reserve bank warns; banks face big losses; SAA in ICU; Woolies

By Jackie Cameron

  • South Africa stands to lose five years of potential economic output as a result of the shock from the coronavirus pandemic and measures to curb its spread, warns the Reserve Bank’s lead economist. Bloomberg reports that economic growth projections have deteriorated after the government imposed one of the strictest lockdowns in the world, bringing most business activity to a standstill. While growth is forecast to recover to 3.8% next year and 2.9% in 2022, GDP will still be smaller than the levels recorded in 2018 and 2019, Alex Smith, the Pretoria-based Reserve Bank’s lead economist for the financial stability department, is quoted as saying in a presentation on Wednesday. “Hence, the Covid shock could result in nearly half a decade of lost output.” This means the nation’s households and businesses will come under strain, with asset growth and profitability in the finance sector likely to be threatened, he said. While local banks offer smaller businesses government-backed loan relief and the nation prepares to further relax some lockdown restrictions from next month, many companies have already reported job cuts, notes Bloomberg. The central bank is ready to step in with a “variety of additional tools” available to address risks to financial stability in the country, which could worsen through the Covid-19 crisis, it said in its Financial Stability Review. It has already relaxed capital and liquidity rules for banks, cut interest rates to a record low and stepped up government bond purchases, adds Bloomberg.
  • Most South Africa banks are are likely to report losses in the next year or two. So says Kuben Naidoo, Reserve Bank deputy governor and also head of the Prudential Authority, which regulates lenders. “Our financial system is particularly well capitalised and the buffers are sufficiently large,” he is reported, by Bloomberg, as saying. “But let me also say South African banks are not immune to making losses, they are not immune to collapsing.” S&P Global Ratings’ Samira Mensah, a director and lead analyst for bank ratings in Africa, said in the same webinar with Reserve Bank deputy governor. “We expect credit losses to rise to about 1.2% in 2020, so that’s quite significantly higher than the 0.7% recorded last year,” she said. Total private credit sector to GDP will probably shrink to 80%, compared with 87% a few years ago.
  • South Africa plans a $20.5bn infrastructure program to boost job creation, said Paul Mashatile, the treasurer-general of the ruling African National Congress, in a speech to London’s Chatham House. The program will focus on “network industries such as rail and ports, energy, broadband connectivity, water, sanitation and human settlements,” and is aimed at creating jobs for young South Africans, Mashatile said.
  • The comments in a letter to affected parties – seen by Reuters – mark a shift in tone from a recent appearance before a parliamentary committee, when the administrators said a wind-down of the business was a probable outcome. SAA has been fighting for its survival since entering business rescue in December, after almost a decade of financial losses. Earlier on Wednesday, the administrators had denied that SAA was aiming to resume flights in mid-June between Johannesburg and Cape Town, its only domestic route, rejecting a company statement from a day earlier. They said they had not vetted the statement, according to Reuters. “The position around the cessation of flights remains as is until SAA has a better sense of what the level 3 lockdown means in terms of domestic air travel,” the administrators reportedly said, referring to President Cyril Ramaphosa’s loosening of Covid-19 restrictions, which included opening up domestic air travel for business purposes.
  • Woolworths has scrapped its 2020 dividend and is reviewing its Australasian property assets as the retailer battles tough conditions created by the Covid-19 pandemic, says Reuters. Woolworths, which was struggling before Covid-19 struck the globe, has seen its turnover shrink by about 20%. Woolies lost just under 2% of its value on the Johannesburg Stock Exchange by the end of trading on Wednesday.
(Visited 6,198 times, 1 visits today)