Mbabane: Official forecasts from the Central Bank of Eswatini are pointing to a gloomy economic outlook in 2020.
According to the Central Bank Governor Majozi Sithole, due to COVID-19 preliminary projections indicate that GDP will decline by 6.2 percent in 2020 compared to an initial pre-COVID-19 projection of 2.8 percent (published in January 2020).
The governor announced these projections when delivering his 2019/20 Annual Monetary Policy Statement on Thursday. Sithole said the secondary and tertiary sectors are the main drivers for the significant downward revision. “The secondary sector is projected to decline by 9.6 percent, compared to previous projected growth of 3.8 percent in 2020.
The poor performance in the secondary sector is mainly linked to anticipated declines in manufacturing and construction subsectors, which would be largely impacted by global supply chain disruptions that would affect supply of inputs for production while weak global demand would weigh heavily on uptake of sales particularly for exported-oriented manufactured products,” Sithole said.
The Governor went on to say labour supply disruptions due to COVID19-related containment measures would also disrupt production in labour-intensive manufacturing segments such as food processing and textile manufacturing.
The tertiary sector is projected to decline by 5.7 percent in 2020, compared to a growth of 1.3 per cent in the earlier projections. Sithole said the tertiary sector would mainly be affected by travel restrictions and other COVID-19- related containment measures enlisted in the lockdown restrictions that came into effect in March 2020.
“Mostly affected sub-sectors include: ‘tourism related activities’, ‘transport services’, ‘wholesale and retail’ and ‘professional and technical services’. Weak domestic growth prospects would also further undermine growth in the ‘financial services’ and ‘general public administration’ subsectors,” he observed.
Sithole pointed to the fact that subject to a moderate recovery as lockdown measures prospectively get relaxed as the year progresses, GDP is projected to recover to 2.1 per cent in 2021 before declining to 1.5 per cent in the subsequent year.
The governor said the modest recovery in 2021 is largely due to base effects, adding that sectors like manufacturing are expected to recover at a faster pace than other sectors such as tourism activities, which are expected to remain on negative territory for a longer spell in light of risks associated with them.
Sithole said an anticipated deterioration in the fiscal position in the short-to-medium-term would weigh heavily on growth outcomes especially because postponed fiscal consolidation would become inevitable. When analysed on a high frequency basis, economic activity reflected a slowdown in the second half of 2019. Quarterly GDP numbers, produced by the Central Statistics Office, show that GDP contracted by 2.1 per cent, on a year-on-year comparison, seasonally adjusted, in the fourth quarter of 2019 from a revised 0.4 per cent in the third quarter of 2019. The governor said the week growth outcome mainly emanated from poor performance in the secondary sector.
He highlighted that following a strong performance in the first half of the year, the secondary sector receded by 9.5 per cent, year-on-year, in the quarter ended December 2019. The governor said this was largely due to poor performance in the manufacturing sector and significant decreases were observed in the ‘manufacturing of sugar’, ‘manufacturing of textiles’, ‘manufacturing of wood and wood products’ and ‘manufacturing of paper and paper products’ subsectors.
In addition, construction activity remained constrained declining by 0.6 percent, year-on-year, in the last quarter of 2019 following another decrease of 1.0 per cent in the previous quarter.
It is said growth in the primary sector remained modest at 0.7 percent, year-on-year, in the last quarter of 2019 slightly lower than 1.0 percent in the previous quarter. Sithole highlighted that the developments in the primary sector were mixed.
On a positive note, there were notable increases in the ‘mining and quarrying’ and ‘livestock’ subsectors. On the contrary, there was a slowdown in ‘crop production’ and ‘forestry and logging’ activities, the bank noted. “The poor performance in the secondary sector was somewhat counteracted by improved performance in the tertiary sector,” the governor said.