South Africa is highly exposed to economic conditions in China and the world economy and the Covid-19 outbreak is expected to hurt export-oriented industries, including mining and manufacturing, as well as travel, tourism and hospitality, hardest, says financial services provider Nedbank.

The financial institution has revised its gross domestic product (GDP) growth forecast for the country down to 0.3% this year, with a high risk of recession.

It also expects South Africa’s GDP growth to reach 0.9% in 2021 and 1.1% in 2022.

Nedbank explains that the risk of company closures and job losses are the highest in the export-oriented sectors.

The South African Reserve Bank’s Monetary Policy Committee is forecast to respond to the country’s faltering economic prospects by cutting interest rates further, supported by a subdued inflation outlook, which is reinforced by the implosion of global oil prices.

Nedbank further believes the rand is likely to remain weak and volatile, dominated by swings in global risk sentiment.

The coronavirus originated from Wuhan, in the Hubei province of China, as early as November. The outbreak has since grabbed the world’s attention as the virus gained critical mass globally and the Chinese authorities began to impose strict containment measures.

The number of global confirmed cases rose from 282 in January to 118 326 on March 11.

China still accounts for the majority of confirmed cases of Covid-19 at 68.4%, with 3 162 fatalities having occurred so far in this country.

Globally, 113 countries have confirmed cases of Covid-19, with 37 371 cases reported. The majority of these cases are in Italy, followed by Iran, South Korea, France, Spain, Germany, the US, Japan, Switzerland and the UK. As at March 13, South Africa had fewer than 20 confirmed cases.

China’s GDP growth forecast for the year has been reduced to between 4.5% and 5.5%, compared with 6% previously expected. The world economic growth rate expectation has been reduced to between 1.9% and 2.6%, down from 3% previously expected.

Nedbank says that, in terms of global financial implications, risk-off sentiment will likely dominate, with much higher levels of underlying volatility.

The bank points out that global investors are likely to opt for safe-haven assets, such as gold, until the spread of the virus is halted and some of the extreme preventative measures are lifted. “This has already inflicted considerable strain on emerging market equities, bonds and currencies.

“Global monetary policies will become even more accommodative. Gold prices will likely remain elevated, but other commodity prices, such as crude oil, are likely to slide in line with weaker global demand.”