The Covid-19 shock has put large portions of the economy into a ‘policy-induced coma’ with hundreds of thousands of job losses now a very distinct possibility, says the South African Reserve Bank.
In its latest Monetary Policy Review, the central bank notes that the pandemic has caused a ‘supply shock’, in the sense that no amount of demand can be satisfied if industries are closed.
As the supply side of the economy reawakens after the lockdown, however, the demand-side aspects of Covid-19 will become more pressing, it said.
“Preliminary estimates suggest South Africa could lose about 370,000 jobs this year, on a net basis, with business insolvencies increasing by roughly 1,600 firms as the economy contracts.
“The core macroeconomic problem, therefore, is how best to support the economy, to mitigate these losses, while remaining cognisant of South Africa’s pre-existing macroeconomic vulnerabilities, which make it unrealistic to implement stimulus on the scale seen in the strongest advanced economies.”
However, some economists indicate that these forecasts may be conservative – especially if the country decides to extend its lockdown period.
Efficient Group chief economist Dawie Roodt said he expected that more than one 1 million jobs would be lost following the 21-day lockdown.
Economist Mike Schussler added that he had calculated that if the lockdown was extended by another 10 days, about 1.6 million jobs would be lost in the formal sector by the end of the second quarter.
Global job losses
This problem is not unique to South Africa however, and both Europe and America are grappling with how the coronavirus will impact economies.
“We see unemployment rates in the US and Europe getting up well up into the teens,” Peter Hooper, global head of economic research at Deutsche Bank said in an interview with Bloomberg Television.
“Given the pain that we see near-term in the US and Europe, this is unprecedented since the Great Depression, in terms of magnitudes.”
Economists at JPMorgan Chase predict their measure of unemployment in developed markets will jump by 2.7 percentage points by the middle of this year, having started this year around its lowest in four decades.
While there will be some healing as economies recover, the group still predicts elevated unemployment of 4.6% in the US and 8.3% in the euro area by the end of 2021.