Written by Lewis Humphries, freelance journalist.
It was on 12th March last year that the coronavirus was officially declared as a global pandemic, as Europe and nations such as Italy became the epicentre of the worldwide outbreak.
Developing regions such as South Africa have been particularly adversely affected over the course of the last 12 months, although recent signs suggest that trade volumes and sentiment may be beginning to improve. To this end, the USD/ZAR is approaching its lowest level in 2021 to date, with the South African Rand currently trading around 14.53.
But how have the economy and the Rand been impacted by the pandemic during the last 12 months, and what does the remainder of 2021 have in store?
A Turbulent 2020
The coronavirus crisis devastated the world’s economy, particularly in conjunction with subsequent social distancing and lockdown measures.
Combined, these entities saw consumer demand and spending fall across a huge array of markets, while cutting international trade and exports across the globe.
African economies were hit particularly hard, with these entities (such as Nigeria and Angola) incredibly reliant on global exports. Sub-Saharan economies were the most affected, with this region’s growth declining from 2.4 percent in 2019 to a paltry -3.3 percent last year.
To put this into further perspective, the GDP growth rate in South Africa averaged a healthy 2.68 percent between 1993 and 2020, but last year saw some incredible volatility against the backdrop of Covid-19.
More specifically, Q2 of 2020 saw a record contraction of -51.70 percent, before quarter three ushered in a staggering recovery and subsequent growth of 66.10 percent.
Why Things are Looking far Brighter in 2021?
Despite a turbulent 2020, the Q3 performance highlighted something of a turning point for South Africa, as global economies began to tentatively reopen (at least in some regions) and export demand increased incrementally.
This has been reflected by the outlook published by the International Monetary Fund (IMF), which has elevated South Africa’s 2021 growth forecast in line with upgrades delivered to developed economies such as the US.
Overall, SA’s GDP is expected to peak at 6 percent in 2021, before growing by a further 4.4 percent the following year. Both figures are well above the historical average, hinting that South Africa could emerge from the pandemic stronger than ever before.
The declining value of the USD/ZAR price is also indicative of improved sentiment in South Africa, with Tickmill reporting that this asset fell further as the market reacted to the new deal between Pfizer and the South African government. This will ensure that 20 million vaccine doses are delivered to the region from mid-April, hastening the return to some form of economic norm.
Of course, the volatile nature of the Rand means that you may want to avoid trading this asset in the near-term, unless you’re a risk hungry investor who wants to capitalise on a growing but still uncertain economy.
However, this definitely suggests that growth is returning to South Africa, which is great news for businesses, consumers and investors alike.