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The economic effects of the coronavirus crisis have been extensive and a recovery to pre-pandemic levels will take several years. Current forecasts from the IMF show global gross domestic product (GDP) contracting by about 4.9% this year, although the general economic outlook has improved somewhat. Second quarter GDP outcomes for most economies have been massively negative, as expected. At this stage, third and fourth quarter recoveries for 2020 are expected to be robust. However, the pace of growth into 2021 could be modest, depending on control of new virus outbreaks, the extent of supply and demand losses, and future growth in investment and productivity.

The Covid-19 outbreak has had major health, social and economic impacts, presenting difficulties in forecasting domestic and global economic activity. The compilation of accurate economic statistics has and will remain severely challenged.

Risks to the growth outlook are assessed to be balanced, but this is tentative and open to adjustments given the wide range of shocks hitting the economy, uncertainties involving the effectiveness of policy, and the sensitivity of sentiment to news flow. The exceptionally accommodative policies in many advanced economies and improved economic outlooks have supported a partial recovery in global financial markets. But this has so far resulted in only a trickle of fresh capital flows to emerging markets, and financing conditions remain uncertain.

The sharp rise in South Africa’s public financing needs arising from falling tax revenue and higher spending has been financed by higher private sector savings and borrowing from international financial institutions.

The overall risks to the inflation outlook at this time appear to be balanced. Global producer price and food inflation have bottomed out. Oil prices remain low. Local food price inflation is expected to remain contained. Risks to inflation from currency depreciation are expected to stay muted while pass-through remains low. While there are no demand side pressures evident, electricity and other administered prices remain a concern. Additional exchange rate pressures could result from heightened fiscal risks. Importantly, expectations of future inflation continued to soften this year and have shifted slightly below the mid-point of the band for 2021. Market-based expectations for short and medium-term inflation have eased slightly, while longer-term inflation expectations remain higher.

The potential growth rate of the economy should be addressed by implementing prudent macroeconomic policies and structural reforms that lower costs generally, and increase investment opportunities, potential growth and job creation. Global economic and financial conditions are expected to remain volatile for the foreseeable future. In this highly uncertain environment, future decisions will continue to be data dependent and sensitive to the balance of risks to the outlook.