The World Economy – what caught my eye this week: South Africa in a deep recession, and the EU Commission lowers its forecast for economic growth in the EU

South Africa in a deep recession

The Covid-19 pandemic and measures to contain it resulted in a dramatic slump in economic performance also in South Africa. The economic contraction will be especially pronounced in the current second quarter. The data for the second quarter look really bad at the moment; for instance, consumer confidence dropped sharply. In the first quarter, GDP already declined by 2 percent (annualized) which continued the recession that already started in the second half of 2019. The South African economy is likely to recover and grow in the second half of the year; however, the decline in growth from the first half of the year will probably not be offset until 2022. Obviously, such forecasts are associated with a high degree of uncertainty. For instance, there is the risk of a second wave of the pandemic and global tensions could increase creating negative spillover effects for the South African economy. One should not publish a precise economic forecast at the moment because of the very high uncertainties surrounding any assessment and forecast. For 2020, it may be reasonable at the moment to expect a negative growth rate in the range of minus 7 to minus 10 percent. In 2021, there will hopefully be a gradual recovery, which may be expected to result in positive growth rates ranging from 2 to 5 percent.

EU Commission lowers its forecast for economic growth in the EU

The EU Commission lowered its GDP growth forecast for 2020 to -8.7 percent for the whole European Union. In spring, it was somewhat less pessimistic and had forecasted a negative growth rate of 7.7 percent. In 2021, the growth rate is forecast to be 5.8 percent.

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