South Africa's economy could contract as much as 8.2% this year if a second wave of the coronavirus hits the country and its trading partners, according to the OECD.
A renewed wave of coronavirus infections in October and November remains a possibility and that could also slow the recovery next year, limiting 2021 economic growth to 0.6% instead of 2.5%, the Paris-based organization said Friday in a survey about South Africa. That's despite some lockdown measures to contain the spread of the pandemic that remain in place.
The lockdown that started on March 27 gutted an economy that was already stuck in its longest downward cycle since World War II. With more than 480,000 confirmed Covid-19 cases and 7,812 fatalities, South Africa is the worst-hit country on the continent and the pandemic has yet to reach a peak, according to government projections.
If a double-hit scenario can be avoided, the OECD still sees the economy contracting by 7.5%, worse than the government's forecast of 7.2%.
To protect lives and minimize the risk of a second wave that could potentially lead to another large-scale lockdown, the OECD recommends further testing, tracking and isolating those infected. Augmenting medical capacity is also necessary to cope with another outbreak, it said.
Even when growth returns, rising government debt and policy uncertainty will hold back investment and limit economic growth, the organization said. To improve expansion prospects “supporting the economic recovery in the short-run while undertaking reforms to increase potential long-run growth is key,” the study says.
These are some of the OECD's recommendations:
- Lower interest rates.
- Restructure state-owned companies, including reducing staff and bringing in private participation.
- Index public service wages below inflation for three years and link them to productivity.
- Provide additional support to sectors that were hit hard by the crisis, especially tourism.
- Implement electronic visa programs for emerging target markets
- Grant more independence to regulators in the energy, transport and telecom industries.
- Use Eskom Holdings SOC Ltd.'s restructuring to diversify power generation and invest in renewable sources of energy.
- Increase the public financing of health care through a form of public insurance at a pace and scale that is affordable.
©2020 Bloomberg L.P.
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