Expert: Lockdown extension will be further blow to ailing economy

Expert: Lockdown extension will be further blow to ailing economy

- An extension to the lockdown will further weaken South Africa’s already fragile economy and cause much discomfort for the citizens, with the government having to put social mechanisms in places such as unemployment grants, food coupons and feeding schemes

- At 29.1%, South Africa has the highest unemployment rate in the world, according to a Bloomberg survey

- South Africa, which also has the highest inequality rate in the world, will see its unemployment figures soar to 31% this year

- The country can expect its GDP to shrink by 23.5% this year due to a virtually inactive economy

PAY ATTENTION: Click “See First” under the “Following” tab to see Briefly.co.za News on your News Feed!

By Neesha Maharaj - Freelance journalist

When economists and analysts heard the South African government was to institute a nationwide lockdown almost two weeks ago, with only essential services in operation, they began spouting gloomy analyses that told the country we could expect bleak economic times ahead.

Economists say South Africa is a textbook definition of a country in recession – it has experienced two quarters of negative growth.

An extension to the lockdown in South Africa in a bid to fight the coronavirus, Covid-19, does not bode well for the country’s economy.

This is the view of Ian Cruickshanks, an analyst at the Centre for Risk Analysis. While the South African economy will survive should the president lengthen the lockdown, there will be much “discomfort”.

“An extension of the lockdown will mean a lot of discomfort for the entire economy. With people not making money, consumer and business spending will not occur. This is what keeps an economy alive,” Cruickshanks said during an exclusive interview with Briefly.co.za.

With a further lockdown, we can “forget about” infrastructure development in the country, such as roadworks, he says.

Government will have to implement various social mechanisms to ensure people survive in bleak economic times. Social grants for those unable to earn a living have to be considered. Feeding schemes and food coupons would have to be introduced to help people in dire straits.

READ ALSO: Minnie Dlamini does lovely appreciation post for her doctor bestie

Cruickshanks said the South African economy was not doing well before the lockdown and the emergence of the killer coronavirus made things worse. He foresees an 8-10% drop in South Africa’s GDP in the first quarter. In the second quarter, there is bound to be a further 2-3% decline in economic income for the country.

“The downgrades by rating agencies Moody’s and Fitch is a further blow to South Africa. This affects investments in the country. A shrinking economy means people don’t have enough to spend, hence there’s no positive growth for the South African economy,” he said.

For the next two years, it's expected that South Africa will experience adverse economic conditions.

Fitch downgraded South Africa to junk status because the country “lacked a clear path” towards stabilising its debt position, a situation that was likely to worsen by the effect of the coronavirus shock on the economic growth and public finances.

A further driver of the downgrade, according to Moody’s was because of South African banks’ “high sovereign exposure", mainly in the form of government debt securities held as part of their prudential liquidity requirements, which links their credit profiles to that of government.

FNB economists expect the South African economy to enter a short but “deep recession”. Analysts at the banking institution said South Africa’s poor rand-dollar exchange had seen a record low in business and consumer confidence and the country has struggled to breach a 2% growth in the economy for the past decade.

This is why we should care about the strengthening of the rand, according to economists.

The analysts (FNB) estimate a 4.5% contraction of the economy for the year, worse than the 1.5% encountered in South Africa in 2009 during the global financial crisis.

For the second quarter, which commenced last week, ABSA believes the GDP could “shrink” by 23.5%.

“The important thing to consider is not the depth of the crisis now, but the fact that South Africa is likely to have permanent losses of output – to the order of R300 billion, resulting in permanent steps up in unemployment,” they said in a statement.

Bloomberg statistics show South Africa not only has the highest inequality rate in the world, but also unemployment at 29.1%. This is expected to rise with Business South Africa expecting 150 000 job losses this month.

FNB sees unemployment increasing to 31 per cent in 2020, making it the highest unemployment rate on record and in line with the drop in GDP growth. South Africa lost one million jobs in the global financial crisis of 2008/09.

Enjoyed reading our story? Download BRIEFLY's news app on Google Play now and stay up-to-date with major South African news!

Source: Briefly.co.za

Online view pixel