Professional services firm PwC has published its latest economic outlook which includes forecast scenarios for South Africa’s lockdown levels, and their likely impact on the economy.
The report, published just prior to the country’s move to a level 3 lockdown on Tuesday evening (15 June), focuses on both upside and downside scenarios, and includes a baseline assumption.
Based on current projections, the country is currently straddling the baseline and downside scenarios – with much of the focus on the severity of South Africa’s mid-year wave.
“PwC’s economic scenarios for 2021 are strongly influenced by different perspectives about the severity of the third wave of Covid-19 infections.
“The severity of the mid-year wave, and the accompanying strictness of associated lockdowns, will primarily determine the nature of the economic recovery.”
The group said that it also considered the adverse effect of load shedding and the positive impacts of fiscal and monetary stimulus on the economy.
“To estimate the economic impact of lockdown levels, an Economic Impact Assessment (EIA) scenario tool was developed. PwC used a Social Accounting Matrix (SAM) methodology to estimate how lockdown restrictions affect various sectors of the economy.
“This scenario tool helps us understand the direct, indirect and induced impacts of the specific shock on the local economy.”
While a subsequent easing in restrictions is expected as the winter thaws in August and September, South Africa is anticipated to remain in level 1 lockdown from September towards year-end.
This scenario sees the economy growing by 3.7% in 2021.
The forecast also includes an assumption of continued electricity load shedding akin to the 2020 norm.
The upside scenario sees fewer days of load shedding for the remainder of the year, a less strict lockdown during winter due to vaccination successes, and a complete lockdown exit from September. This would see the economy grow by 5.9% this year.
In turn, the downside scenario assumes a more severe infection level during the third wave and no exit from the lockdown until 2022. An economic growth rate of only 1.3% is linked to this scenario.
Return to normal by 2023
Based on its forecasts, PwC expects GDP to return to the pre-pandemic levels by 2023.
The group said that this could happen sooner under the upside scenario, though at the same time a sluggish recovery under the downside scenario could see the timeline extended to 2027.
“Amongst the alternative alternatives, we currently see the downside scenario as slightly more likely than the upside narrative. It is important to keep in mind that South Africa’s real GDP per capita was in decline before Covid-19, and dropped by 8.3% last year.
“Based on our GDP and population growth expectations, real GDP per capita will only return to 2019 levels by 2028.”
Total employment fell to 2011 levels during the depths of the Q2 2020 lockdown and ‘recovered’ to 2014 levels by Q1 2021.
However, the number of jobs in the country by March 2021 was only at 91% of the end-2019 period.
“We estimate that, by the end of this year, total employment should be at a similar level to that seen in 2015. Our economic forecasts suggest South Africa will recover 444,710 jobs in 2021.
“By our estimates, this number could have been closer to 650,000 were it not for the adverse impact of electricity load shedding,” PwC said.
PwC said it now expects total employment to return to 2019 levels by 2025. However, by then, a large number of new aspiring workers will have been added to the labour force, it said.
“As such, PwC expects the narrowly defined unemployment rate to oscillate around the 32% level over the long term. This should not be accepted as normal or acceptable.”
“Our upside scenario suggests that it is possible for the unemployment rate to return to pre-pandemic levels below 30% by 2024,” it said.
However, this requires a higher average economic growth rate of 3.5% per annum over the 2021-2024 period compared to a baseline forecast mean of 2.4% per annum.