an address by lesetja kganyago, governor of the south african reserve bank ( sarb ), at the 100th annual ordinary general meeting of the sarb shareholders south african reserve bank, pretoria 31 july 2020 global economic conditions we mark the 100th annual ordinary general meeting ( agm ) of the south african reserve bank ( sarb ) at a time when the world is facing one of the most disruptive and challenging crises in recent memory. the covid - 19 pandemic has placed significant pressure on the global as well as domestic economies, and the livelihoods of citizens. the unprecedented restrictions imposed by countries to try and contain the spread of the virus have contributed to plunging economic activity, ending the global economic expansion that had started in 2010. in its latest update on the world economic outlook, the international monetary fund ( imf ) estimates that global gross domestic product ( gdp ) will contract by about 4. 9 % in 2020. the world bank highlights that this will be the deepest global contraction since 1945, with a record 93 % of the world ’ s economies expected to experience economic contraction this year. the decline in global gdp has been compounded by increased risk aversion and extreme volatility in financial asset prices, with sharp and deep market selloffs. business and consumer confidence has also fallen as uncertainty levels reached page - 1 - of 9 new highs. resource - exporting economies and countries with a high reliance on debt markets for funding will become even more vulnerable if capital continues to flow out of emerging market economies. the global policy response has matched the magnitude of the crisis. fiscal authorities have contributed by delivering stimulus packages that are estimated to be larger than the response to the global financial crisis of 2008 and 2009. this stimulus has provided support to the health sector and to vulnerable households and businesses. central banks around the world responded swiftly by lowering interest rates and providing liquidity to maintain market functioning. these response measures have helped to ease global financial conditions, allowing governments and companies to continue accessing domestic and international financial markets, and thus being able to sustain business operations and provide support to households. as a consequence, the high - frequency indicators suggest that the gradual lifting of lockdown restrictions in the major economies ( first china, then europe ) has seen a rebound in manufacturing production and retail spending. while major economies in asia and europe appear to be on the road to recovery, the united states ( us ) and most of the emerging world are still very much in the midst of the crisis.

many countries – especially in africa, latin america and south asia – are still experiencing increases in new covid - 19 infections. this has resulted in a delay in economic reopening or, in some cases, has led to renewed lockdown restrictions. as the pandemic persists, it is clear that some sectors of the economy, like travel and recreation, will experience a prolonged drop in demand. households may continue to maintain high precautionary savings, and uncertainty is likely to weigh on business capital spending plans. for many countries, the room for additional fiscal stimulus is limited should there be a ‘ second wave ’ of infections, resulting in significantly higher debt - to - gdp ratios as well as higher costs of accessing finance. page - 2 - of 9 domestic economic conditions in south africa, the covid - 19 crisis appeared at a time when our domestic economy was already vulnerable and in a technical recession. real gdp had contracted at an annualised rate of 0. 8 % and 1. 4 % respectively in the last two quarters of 2019. this decline accelerated to an annualised rate of 2. 0 % in the first quarter of 2020, despite the nation - wide lockdown only coming into effect in the last few days of march. this was due to falling export demand, weak business confidence and investment, and the return of load - shedding. while second - quarter gdp data are not yet available, there is sufficient evidence to confirm that the lockdown has exerted a drag on economic activity. for example, mining and manufacturing production plunged by 37 % and 44 % month on month, respectively, in the month of april. and while there are signs of recovery in some sectors, much uncertainty remains. the covid - 19 outbreak is having major health, social and economic impacts, which presents challenges in forecasting. the sarb expects that the lockdown will cause output to contract by 7. 3 % in 2020. the last time a figure of this magnitude appeared in our data was in 1931, during the great depression, when output fell by 6. 2 %. in line with a partial global recovery, we expect economic activity in south africa to start recovering as lockdown measures are gradually eased. our projections for 2021 and 2022 are for gdp to recover to 3. 7 % and 2. 8 % respectively. due to global economic and financial conditions, as well as country - specific factors, south africa experienced an increase in capital outflows and significant currency weakness between