Investors hawkish about SA’s economy’s prospects after news of new Omicron variant and travel bans
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THE EMERGENCE of the Omicron variant and subsequent travel bans have turned investors hawkish about South Africa’s economy’s prospects to return to pre-pandemic levels in mid-2022.
Uncertainty about the virulence of Omicron, its ability to resist vaccination and spread rapidly, among other things, have rocked global financial markets.
As a result, investors have started revising downwards their economic growth forecasts for South Africa due to these headwinds.
Fund managers have pointed to the new Covid-19 variant, cost-pushing inflation dynamics and unstable electricity supply as some of the risks to the economic outlook.
Momentum Investments, which has more than R550 billion in assets under management, yesterday said subdued activity would have serious implications for the fiscus.
Momentum’s economist Sanisha Packirisamy said growth was expected to soften significantly from the expected 4.9 percent rebound in 2021 to a projected 2 percent in 2022.
“A deceleration in global demand, ongoing electricity supply constraints, and lingering unemployment will constrain economic activity in 2022,” she said.
“Lower growth forecasts into 2022 and declining commodity prices suggest that the tax buoyancy rate will shift lower in the next fiscal year.”
Last month, the SA Reserve Bank (Sarb) lowered the gross domestic product (GDP) forecast down to 5.2 percent this year from 5.3 percent it estimated in September, before falling to 1.7 percent in 2022.
BNP Paribas senior economist Jeffrey Schultz maintained his 1.8 percent GDP growth estimate for 2022, but flagged growing downside risks.
“It is undeniable that the incipient economic recovery looks somewhat more agile,” Schultz said.
“Recent border closures along with poor vaccination rate means this uncertainty is likely to linger for some time.”
Omicron has thrown a spanner in the works for emerging markets economies as industries such as tourism, leisure and hospitality will suffer from renewed travel bans.
Global investment manager Schroders said sentiment was likely to remain dampened in the near term particularly towards emerging markets.
Schroders senior emerging markets economist David Rees said sentiment was likely to remain dampened in the near term particularly towards emerging markets that are most sensitive to risk appetite.
“This is particularly the case for South Africa and other parts of the African continent,” Rees said.
“From an economic point of view, the emergence of Omicron adds to the recent tilt in many parts of the world towards the reintroduction of restrictions.”
PwC estimated that the travel bans introduced since November 27 could cost the country up to R6.5 billion in potential foreign revenues, placing pressure on GDP growth during the fourth quarter.
PwC chief economist Lullu Krugel said the economy would expand by 3.8 percent in 2021, but the outlook for 2022 was uncertain at best.
“Our GDP growth scenarios range from 1.5 percent and 3.0 percent. South Africa is facing a new normal during 2022 in which lockdown restrictions are likely to end,” Krugel said.
“However, the pace of the jobs recovery continues to be very slow. As such, the socio-economic recovery from Covid-19 will likely also be very slow in 2022.”
South Africa remains on alert level 1 lockdown with minimal restrictions, but the government is consulting widely on the possibility of introducing stricter measures as Covid-19 cases are on the rise.
BUSINESS REPORT ONLINE