South Africa’s jobs shocker after the 35-day lockdown

 ·4 May 2020

Nedbank has published a new report on how the coronavirus pandemic and the subsequent 35-day lockdown is set to impact jobs in South Africa.

The group said that its forecasts are based on GDP calculations (GDP tends to lead employment growth in the South African context), past employment behaviour in the respective industries under various scenarios, as well as government information on which sectors will be allowed to operate when.

The methodology used relied heavily on past employment growth behaviour, which shows that in periods, such as immediately after the global financial crisis, GDP growth tends to recover much faster than employment does.

Nedbank forecasts that 1.6 million jobs will be shed in the country in 2020, with the bulk of the jobs lost in the first half of the year. By comparison, approximately 900,000 jobs were lost after the global financial recession.

“Our forecasts for GDP recovery in the current pandemic take on an inverted J-shape and so do our forecasts for employment, which is different from 2009 due to the nature of a 35-day lockdown followed by a gradual re-opening of the economy,” Nedbank said.

“What is, however, significantly different between this employment cycle and the one in 2009 is that even three years after the trough in job losses, employment still does not reach its pre-crisis peak.

“The 35-day lockdown has severely negative consequences for employment, which will take more than three years to neutralise.”

Treasury recently stated that as many as 7 million South Africans could become unemployed if large chunks of the economy remained closed for the remainder of the year.

It said that around 3 million jobs are at risk even if the pandemic is contained quickly, while a slow recovery could see 5 million job losses. A worst case scenario would push the unemployment rate to over 50%, from its current rate of just under 30%.

Dondo Mogajane, the National Treasury’s director-general, warned on Monday that the country’s unemployment rate could reach as high as 40%.

Speaking to 702, he said that the economy could contract between 7% and 12% as a result of the impact of the coronavirus.

He said that unemployment could reach between 30% and 40% – “if things go the way they are”. He said that the tourism industry is on its knees, with travel agencies closing down.

Given the anticipated loss of jobs, there will be very little demand and so equally little price pressure in this economy, Nedbank said.

“This means that our inflation forecasts will probably come in lower than we currently expect.

“This suggests that there is scope for further interest rates cuts, we expect another 25 to 50 basis points reduction in the repo rate in May.

“The implications of the anticipated job losses for household income and spending also suggest that interest rates are likely to remain steady at lower levels for an extended period of time.”

Nedbank added that it will take much longer in this cycle for both employment and economic growth to reach their pre-crisis peak.  This is owing to the depth of the 2020 contraction in GDP, it said.

“We are forecasting a 7% contraction compared to the 1.5% decline that was recorded in 2009.

“While the contraction in growth is much deeper in 2020, the number of lost jobs, while large, are not as severe as the rate of GDP contraction. This could be the nature of the current lockdown where it was closed in an abrupt fashion and then gradually opened again and in the absence of the external sector.”

Hardest hit jobs

Nedbank’s economists indicate that just three industries will bear the brunt of these jobs losses and are expected to lose 1.4 million jobs between them.

These include:

  • The wholesale and retail trade sector;
  • The sector that deals with the repair of motor vehicles, motorcycles and personal and household goods;
  • The hotel and restaurants industries.

Other industries that will shed jobs this year are manufacturing (-149,000), ‘transport storage and communication’ (-124 000) as well as construction (-109,000).

The ‘mining and quarrying’ and ‘financial intermediation, insurance, real estate and business services’ industries are estimated to add 7,500 and 24,000.

“While it took GDP growth approximately a year to reach its pre-crisis peak after the global recession, employment reached its pre-crisis peak four and a half years later,” Nedbank said.

“This underscores the fact GDP growth leads employment growth in South Africa and that growth would have to recover significantly for employment to improve.”

Read: Increase in grocery prices during South Africa’s lockdown – this is what you are paying more for

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