More than a million jobs on the line because of Covid-19 lockdown: economist

More than a million South Africans can expect to become jobless over the next few months as a result of the deep recession that is expected to slash economic growth by between 5% – 6%.

Dawie Roodt, chief economist of the Efficient Group said it was going to be at least as bad as the Great Depression that hit the world in 1929 and much worse than the crash of 2008.

“We are going to see at least a million consumers lose their jobs and what is even worse is the fact that it is going to take a long time to recover.”

Neil Roets, chief executive of debt counselling firm, Debt Rescue, said the outlook for deeply indebted consumers is growing darker with every day of the lockdown.

“We fully understand and agree that social distancing has to be maintained and even tightened to save lives but, there is no sugar-coating the fact that consumers are heading for disaster.

“We are lucky in one respect and that is that we have some of the most progressive legislation in the world to help consumers recover from this disaster,” he said.

Roets said the National Credit Act that was legislated 12 years ago and created the National Credit Regulator and the process of debt counselling in South Africa is ideally placed to help deeply indebted consumers to repay their debt at more favourable terms over a longer period of time without losing assets like homes and motor vehicles.

“South Africa has the best legislation of this kind in the world and is the only country that allows home loans to be included under debt review.

He warned that despite initiatives announced by the government to help consumers and businesses financially during the Covid-19 pandemic, and lockdown period, “it simply does not have the money to do that”.

He said loans are going to have to be repaid and credit and store card credit-holders will come knocking on doors for accounts to be settled.

“My expectations at the moment is that the economy will contract by approximately 5% in 2020, so the recession will be extended and will run very deep,” Roodt told MyBroadband.

“That inevitably means many people will lose their jobs and based on previous crises, I expect that more than a million people will lose their jobs.”

Based on a figure of 1 million, and assuming the affected businesses employ an average of 10 people, that would equate to 100,000 businesses closing down in 2020.

“If your assumption is that small businesses employ five people, then 200,000 businesses will close down in 2020,” Roodt said.

“I believe these are conservative numbers that I’ve given you and I think there’s a good possibility that these may actually be worse than what we expect at the moment,” he added.

Policy-induced coma

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.”

Economist Mike Schussler noted 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.

Read: Coronavirus shock could lead to over 370,000 job losses in South Africa: Reserve Bank