SA’s jobs and growth crisis was picking up even before the Covid-19 outbreak that is set to plunge the economy into its biggest slump since the Great Depression.
SA’s unemployment rate climbed to a record 30.1% in the first quarter, Stats SA said on Tuesday, while data from the Reserve Bank showed that its composite leading business cycle indicator, a gauge of SA’s business growth cycle, slid just over 5% in April from March, the first full month of the national lockdown.
That is the biggest drop since 1960, according to Investec.
The data was the latest to underscore the challenges facing the economy as finance minister Tito Mboweni prepares to unveil a supplementary budget on Wednesday. The budget deficit for 2020 will probably come in at 14% of GDP, more than double the number in the February budget, according to information presented to Nedlac at the weekend.
The Treasury is expected to show an unchecked deterioration in debt levels that could rise to almost 114% of GDP before the decade is out, raising concern about the government’s ability to fund itself through the bond market. That has been one of the main factors behind the underperformance of SA’s longer-dated debt.
Most industries experienced job losses in the first quarter, with the finance sector shedding the most jobs, followed by community and social services, agriculture and transport, according to Stats SA’s Quarterly Labour Force Survey released on Tuesday.
The increase in joblessness came in largely before lockdown measures came into effect on March 27, confirming that the economy, which has slipped into recession twice since 2018, was far from recovery.
The Bank’s leading indicator showed that GDP was at risk of contracting in 2020 even before the Covid-19 outbreak, Investec economist Annabel Bishop said.
Economists expect this figure will deteriorate during the second quarter when the worst of the lockdown took place.
"Even after the second quarter you won’t have seen the full effect. The full effect will only emerge by the end of the year," said Econometrix chief economist Azar Jammine.
Though the economy began reopening at the beginning of June, the damage is expected to be deep. Several companies, such as petrochemicals producer Sasol, retailer Edcon, mobile operator Cell C and state-owned SABC, have already announced intentions to lay workers off.
The Treasury is expecting a GDP contraction of 6.4%, according to the Nedlac presentation, though some private sector economists are forecasting a contraction in the order of 10%.
SA’s bonds fell over the past two days, with the 10-year yield rising six basis points on Tuesday to 9.34%, extending an increase that has pushed it from 8.61% early in June, the lowest since February, according to Bloomberg data. Ahead of the country’s lockdown and downgrade in March, the yield reached a record 13.24%.
The Bank subsequently intervened and bought securities in the secondary market to ease liquidity.
Using the expanded definition of unemployment — which includes discouraged work seekers or people who have given up looking for a job — the rate rose to 39.7%.
Second-quarter figures were likely to be "very bad", said Sanlam Investment chief economist Arthur Kamp. Temporary support measures implemented through the government’s R500bn stimulus package could result in some improvement during the third quarter of the year, he said.
"But overall this year certainly looks like we are getting a high level of job losses, and unfortunately I think that [the] unemployment rate will probably climb before the end of the year," Kamp said.
Ratings agencies and organisations such as the Organisation for Economic Co-operation and Development (OECD) have repeatedly stressed the need for the government to implement structural reforms to boost growth and get SA through the worst effects of the pandemic crisis. The OECD warned recently that the unemployment rate could rise to about 35%.
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