South Africa’s largest supplier of imports is China, and its biggest buyer of exports – and the impact of the coronavirus outbreak on the Chinese economy will certainly be felt in the South African economy, according to a PwC report.
The report on the impact of the virus on SA businesses, released earlier in the month, highlighted that Chinese steel and copper manufacturing industries would mean weaker demand for South Africa’s largest exports to the country.
“A Chinese economy with a weaker growth pace and slower metals production will have less demand for these minerals from South Africa,” the report read.
SA’s tourism industry will also come under pressure. With about 95 000 Chinese tourists coming to South African every year, it is one of the areas projected to be most affected, although the sector has not reported any dramatic declines yet.
“Based on recent tourist expenditure trends and some simplifying assumptions, a possible decline of more than 15% in arrivals this year translates into a potential loss of at least R200 million in Chinese tourist spending.”
According to PwC Chief Economist, Lullu Krugel, the spread of the virus to European countries presents another dimension, as the EU is the country’s largest trading bloc.
“I am worried that we have not potentially grasped that economic impact of the spread of the virus to Europe. We have been so focusing on China and have overlooked the impact on the European market,” said Krugel.
The report further states that that mobile phones are South Africa’s largest import category by value from China, supplying 85% of South Africa’s mobile phone imports. A disruption would have knock-on effects on the wider telecommunications sector.
Comparing it to Sars
Speaking to journalists at a post-budget briefing in Cape Town on Friday, FNB Wealth and Investments head of investments Renzi Thirumalai shared how reports on the virus might impact markets.
He first compared it to another respiratory illness, Sars, which broke out in China back in 2003. About 8 000 people contracted the virus and it had a mortality rate of about 10%. The impact on the market at the time lasted for six months, Thirumalai noted. For the first 30 to 90 trading days there was market “pandemonium” due to negative headlines, but the impact had “worked itself out” six months later, he said.
“The difference now is that China is a much more significant contributor to global GDP and the level of global interconnectedness has increased substantially,” said Thirumalai.
The coronavirus itself is more infectious than Sars, with infections now just over 82 000, but these infections are less fatal than Sars, he noted. However, he believes the market had “underappreciated” the risk of coronavirus.
When coronavirus first broke out last year, the market reacted, but not significantly. As it has spread across the world, there appears to be a far more severe impact on markets. This over-cautiousness can be attributed to uncertainty, he highlighted.
Business Insider reported earlier this week that the JSE alone had one of its worst trading days in 20 years, ending the day almost 4.5% weaker, over concerns relating to the virus. Investors instead turned to safe-haven investment, gold, which saw gold mining company Harmony Gold’s stock rally 14%.