South African economy could take 2 years to reach pre-crisis levels: Reserve Bank

South African rand coins sit alongside a South African 100 rand banknote in this arranged photograph in Pretoria, South Africa, on Wednesday, Aug. 14, 2019. The rand ended a tumultuous week on a positive note, gaining against the dollar for a second day and heading for its first weekly advance in four as technical indicators suggested recent declines are overdone. Photographer: Waldo Swiegers/Bloomberg via Getty Images
South African rand coins sit alongside a South African 100 rand banknote in this arranged photograph in Pretoria, South Africa. (Waldo Swiegers/Bloomberg via Getty Images)

The South African economy is likely to recover to pre-crisis levels at the end of 2021 or 2022, said the deputy governor of the South African Reserve Bank (SARB) Fundi Tshazibana on Wednesday while speaking at the Absa Annual Fixed Income Conference.

Tshazibana said despite the fiscal and monetary support provided, South Africa would take about two years to recover from the COVID-19 shocks.

“Private and official institutions, on balance, do not project a return of real gross domestic product (GDP) to pre-COVID-19 levels until late-2021 or even late-2022. Negative output gaps are expected to be the norm. With respect to unemployment, the consensus view is that normalization will take even longer,” she said.

Tshazibana stated that while the economic activity has rebounded with the easing of lockdown, it has not reached the “normal” and pre-crisis levels.

She noted that most emerging market currencies including South Africa have stabilized, even though they remain much weaker than pre-crisis levels.

“The South African rand is currently trading at about R17.00/US$, weaker than the January 2020 average of R14.40/US$ but much improved from early April lows of R19.00/US$. Shorter-dated government bond yields are now trading lower than at the start of 2020, though yields on longer-dated bonds are higher, probably reflecting higher credit risk and debt issuance,” she said.

Tshazibana said the lockdown forced many companies to adapt to different ways of work and of doing business, which, if implemented on a larger scale in the coming years, could boost production. She pointed out that automation, e-commerce and remote working have a potential to play a greater role in economic activity in the coming years.

The SARB observed that the country could benefit from the global fund managers seeking high returns outside their “safe” markets by providing the capital inflows towards emerging security markets.

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