The SA Reserve Bank released its bi-annual Monetary Policy Review (MPR) on Wednesday, wherein it warns that the economy could be further negatively impacted by the emergence of new waves of Covid-19 infections should the country not reach herd immunity.
The central bank however says the impacts to the economy will likely decrease with each new wave, as the “economy adjusts to its new way of operating and as an increasingly large share of the population develops natural immunity from exposure to the virus”.
“The Sarb assumes that about 10% of the population will be vaccinated by the end of the second quarter of 2021, slowly rising to 67% by the middle of 2022,” it says in the MPR.
South Africa’s economy contracted by 7% in 2020 – its sharpest contraction since the 1920s. The contraction is in line with market expectations following the outbreak of the coronavirus and the subsequent lockdown that was implemented to curb the spread of the pandemic.
Sarb has projected a growth rate of 3.8% in 2021, followed by moderate growth of 2.4% in 2022 and 2.5% in 2023. The economy is only expected to reach pre-Covid levels in 2023.
The economic recovery has been uneven across sectors, with Sarb noting that sectors such as agriculture and mining have rebounded to pre-Covid 19 levels, while sectors such as construction and manufacturing have been lagging behind due to weak demand, among other things.
“Unlike most previous recessions, the recovery from pandemic conditions is uneven across sectors, raising the spectre of a K-shaped recovery,” it said.
The growth in GDP is expected to be spurred on by low interest rates and mass vaccination programmes. Last year, the Reserve Bank made drastic cuts to rates (275 basis points) against the backdrop of the pandemic. This resulted in the repo rate being slashed to 3.5% and the prime commercial bank lending rate being at a more-than four-decade low of 7%.
The cuts reduced the real costs of servicing debt for households and firms even as economic activity was curtailed.
In the MPR, the Reserve Bank says the impacts of last year’s policy easing are still filtering through the economy, with peak effects expected later this year.
“These effects should be expected to carry through, as the pickup in mortgage applications suggests. The cuts will linger in the system for some time, boosting growth in the outer period.”
Widespread vaccination is expected to curb the spread of Covid-19, thereby reducing uncertainty and allowing for reduction in disruptions to economic activity. The country’s vaccination rollout has however been marred by disruptions which could cause a rise in infections.
In January the government suspended the use of the AstraZeneca vaccines from the Serum Institute of India, after studies showed that the jabs had minimal efficacy against the dominant 501.V2 strain of the virus that was first identified in South Africa, and which largely caused the second wave of infections.
On Tuesday the health department announced that it would temporarily suspend the rollout of the Johnson & Johnson (J&J) vaccine, following blood clots found in six patients in the United States who had received a single dose of the jab.
Health Minister Zweli Mkhize however is however hopeful that the temporary, voluntary J&J jab suspension will not have a long term impact on the country’s overall vaccination plans.
In the MPR the Sarb said: “A more rapid rollout would quicken the return to ‘normalcy’, particularly for sectors such as travel and tourism. Bringing tourism and transport back to full activity levels would raise the economy’s potential growth (a reversal of the adverse supply shock to these sectors).”
During the MRP release, Sarb Governor Lesetja Kganyago said the successful rollout of the vaccine will likely have a positive knock-on effect on the recovery of the global economy.
“What is going to be protecting us … is getting those vaccines going, as you could see that when you experience any optimism about the rollout of the vaccines globally … we saw global sentiment also changes,” he said.
“For the global community what you need is a faster rollout of the vaccination so that you could actually achieve global herd immunity, because what is clear is that if you protect some and not the others the virus mutates. As it mutates it becomes more difficult [to deal with].”