US-based investment bank and financial services company JP Morgan Chase & Company (JP Morgan) has, in its latest weekly economic forecast for more than 40 countries and regions around the world, identified South Africa as one of the five countries likely to be the most severely hit by the Covid-19 pandemic. And all 40 countries and regions are predicted to suffer from declines in their gross domestic product (GDP) growth rates.

Regarding South Africa, JP Morgan has forecast that the economy will contract by 7% this year. However, as the country’s economy was predicted (pre-Covid-19) to grow only 0.7% this year, this means that the total reversal comes to 7.7%. Moreover, the short-term GDP will be severely cut because the current lockdown has closed about 50% of the national economy. 

South Africa’s more serious problem is that it will find it difficult to recover from the crisis. The national finances are weak. The fact that its sovereign debt is now at junk (sub-investment) grade, following the recent downgrade by ratings agency Moody’s, means that the government will find it more difficult and more expensive to borrow money, just when the country needs to be able to do so, to fight the pandemic.

The other countries in this ‘worst five’ group are Mexico, New Zealand, the US and Australia. Mexico is the only one predicted to be more severely hit than South Africa.

Mexico is also expected to see its GDP drop by 7% this year. However, the country’s economy had been expected to grow by 1.5%, meaning that it is now forecast to experience a total reversal of 8.5% of GDP. In part, this is because of Mexico’s dependence on the US market, and the US has become an epicentre of the pandemic. The result has been a severe disruption of cross-border traffic and trade, with unemployment in Mexico surging. 

Another major source of concern is that the pandemic has not yet hit Mexico itself in full force. Thus the country could face a ‘double-whammy’ of the disease hitting its main market and then subsequently hitting its domestic market.

Regarding New Zealand and Australia, both are heavily dependent on exports – food in the case of New Zealand, mining in the case of Australia – and their main markets (in Asia, especially China) have been severely hit by the pandemic, causing a slump in demand. The New Zealand economy is expected to contract by 7.2%, making it the third most badly effected economy. The US, which will come between New Zealand and Australia, is forecast to see its economy shrink by 5.3%, to give a total reversal of 7%. Australia’s economic reversal is expected to come to 6.9% of GDP.