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SA’s economy seeing figures similar to the 2008/2009 crisis

NewsLite by NewsLite
14th Jun 2020
in Economy
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South Africa is currently far worse off than it was during the economic crisis of the late 2000s, says the business group Business League.

In the coming period, the nature of the policies remaining in the wake of Covid-19 and steps towards reform (or lack thereof) will be crucial to the well-being of all communities in South Africa.

These are some of the findings in Business League’s quarterly  Economic Review for Business Decision Making,  published Sunday in collaboration with ETM Macro Advisors.

Business leagues believe the South African government’s legislative response to Covid-19 was a serious shock to the economy. This follows an economic policy environment that has deteriorated systematically over the course of 2020. Both the Zuma administration and the Ramaphosa administration (to date) have failed to implement market reforms needed to reverse the tide of economic decline.

The June report illustrates the serious extent to which South Africa’s severe restriction has affected trading conditions, with some indicators showing a worse decline in April 2020 than experienced during the economic crisis of the late 2000s.

The report highlights that a swift reversal of the tightening of local seclusion regulations remains a critical element to the likelihood of a significant economic recovery after Covid-19.

“The second quarter of 2020 was unprecedented in many ways,” says Gerhard van Onselen, senior analyst at Sakeliga. “South Africa’s business conditions were already weak even at the start of 2020, but the excessive strict and protracted local restriction had a serious impact on many businesses. Although some isolation measures were relaxed in June, which led to more business activity resuming, many businesses, such as in tourism, are still prohibited from trading. “

Employment

The report highlights the particularly worrying state of employment and estimates that job losses during the seclusion period could amount to between two and three million people.

“We do provide employment recovery in June from the depressed levels of April and May, but it will not be an easy recovery. Unemployment was already very high before Covid-19, and labor market indicators are currently very weak. Many employers are unable to expand their workforce and we are seeing business closures among our members. ”

The experience of countries that have come from restrictions, such as China, suggests that for a considerable time, much economic activity will struggle to recover to pre-Covid-19 levels, especially if businesses are faced with the possible reinstatement of strict isolation measures.

National budget

Another source of concern mentioned in the report is the state of the government’s budget and budget deficit. The seclusion period has increased pressure on tax revenues, while pressure is on for government spending to help households and businesses. Tax revenues appear to fall by around R300bn this year.

“At this stage, new government loans and ongoing interest expenses on loans are approaching 40% of total government spending. On the current trajectory, this figure could easily exceed 50% of total government spending. Where such ratios exceed 40%, this could be a danger sign of an imminent fiscal crisis. ”

“Covid-19 and the government’s legislative response have been a serious shock to the economy, and economic policy space has deteriorated even more since the beginning of 2020. Both the Zuma administration and the Ramaphosa administration have not had market reforms to date. implemented what is needed to reverse the tide of economic decline. In the coming period, the nature of the policies remaining in the wake of Covid-19 and steps towards reform (or lack thereof) will be an important determinant of the well-being of all communities in South Africa, ” Van Onselen closed.

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