Never waste a good crisis: lessons from 2008

Learnings from the global financial crisis show the job loss peak may only be two years from now … we can plan to mitigate the negative effects now.
Unemployed men queue for food outside a church. If SA's growth contracts at the level the IMF expects, as many as 4 million jobs may be lost in the coming years. Image: Naashon Zalk, Bloomberg

The narrative that the current Corona virus pandemic is unchartered territory that has not been seen since the Spanish Flu of 1918, has been at the heart of the economic uncertainty around the world.

Considering that this point of reference is a little over 100 years ago and the world has changed significantly since then, this pandemic cannot be accurately referenced when seeking solutions to the economic impact of Covid-19. There has to be a more recent global crisis that we can learn lessons from to help us navigate this crisis more smoothly.

South Africa, like many other countries, is awaiting to see the full impact of the Covid-19 pandemic and subsequent lockdown which will become apparent as the economy’s statistical data is released. Recently, South Africa saw its Q1 2020 unemployment rate breach the 30% barrier at 30.1%. Considering that the national lockdown only impacted a few days of Q1 2020, the true extent of job losses is expected to become apparent in future statistical releases.

This economic uncertainty has resulted in a wide variety of forecasts being made by various stakeholders across the economy. Some of the most pessimistic views involve economic growth declining by more than 15% and unemployment approaching 50%.

Although the Covid-19 pandemic is novel in its nature, perhaps we could compare the impending fallout to the a global economic recession that occurred as a result of the Global Financial Crisis of 2008. Although the reason for the global recessions differ, the outcome of the 2008 global recession should be investigated to see what South Africa can expect from this global recession.

The tipping point of the 2008 Global Financial Crisis occurred when Lehman’s Brothers went bankrupt in September 2008 which triggered an international banking crisis. This means that the recession was triggered at the end of Q3 2008, hence the full impact was only felt in 2009. Table 1 below illustrates how the global markets and SA were impacted by the 2008 Global Financial Crisis and is compared to the forecast impact in 2020.

Table 1: Global recession impact on economic growth

Region 2009 2020**
SA -1.5% -5.8%
World -0.1% -3.0%
Advanced Economies -3.3% -6.1%
Developing Economies 2.8% -1.0%

*Source: IMF Data Mapper
**IMF Forecast for 2020.

Three commonalities appear between what occurred in 2009 and what is expected to happen to SA’s economic growth in 2020:

  1. SA’s economy entered a recession during both periods.
  2. SA’s recession is deeper than that of the world and developing economies and closely resembles the impact felt by the advanced economies.
  3. SA’s economic recession is among the deepest recessions in the world as a result of the global recession.

Figure 2 below illustrates what happened to SA’s number of employed people in the four years that followed the Global Financial Crisis of 2008.

Figure 2: South Africa’s Total Employed Q3 2008 to Q3 2012

Figure 2 indicates that it took four full years for SA’s employment levels to return to the Q3 2008 levels (after the full impact of the recession had set in). Employment hit its lowest level since Q3 2008 in Q3 2010, two years after the start of the Global Financial Crisis. Between the start of the Global financial Crisis and Q3 2010, approximately one million South African jobs were lost.

This means that the decrease in employment took two years before the economy had recovered sufficiently to begin recovering jobs that were lost.

The loss of jobs also took approximately a year after the crisis before the largest drop in employment in a single quarter occurred in Q3 2009 (527 000 jobs were lost).

The full impact of the global economic recession is yet to be realised but based on the current economic data and the Global Financial Crisis’ economic data, we can forecast what is to be expected.

Prone to hard-hits

South Africa tends to be one of the hardest hit economies during difficult global economic conditions.

In 2009, South Africa’s economy contracted by -1.5% while the average growth for developing economies was 2.8% (IMF). South Africa’s economic contraction of -1.5% sat in the middle between the global figure of -0.1% and the -3% average experienced by the advanced economies (IMF). These results saw the South African economy shed approximately 1 million jobs at the peak of the economic impact.

According to the IMF, SA is expected to contract by -5.8% in 2020. This is in comparison to the developing economies which anticipate a contraction of -1%, world that is expecting a contraction of -3% and the advanced economies that are expecting a contraction of -6.1%. Once again South Africa appears to be one of the hardest hit developing economies. The SA economic impact is expected to mirror that of the advanced economies, as was the case in 2009, despite it being considered a developing economy.

If SA does contract at the level that the IMF anticipates (-5.8%) then this recession will be approximately four times deeper than the recession of 2009. If the impact on employment mirrors this trend on economic growth then as many as 4 million jobs may be lost in the coming years.

The rate at which jobs were lost as a result of the Global Financial Crisis should prepare us for a similar delayed reaction in terms of the poor economic state translating into job losses.

We can expect the peak of job losses to be two years from now and that the economy will take more than four years to recover.

Unfortunately the worst is yet to come in terms of unemployment as the poor economic conditions continue to erode business’ ability to survive. But knowledge is power and we can at least plan to mitigate the negative effects we will need to navigate in the next few years.

Bryden Morton is executive director and Chris Blair CEO at 21st Century

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At R500,000.00 investment per job it means that R2,000,000,000,000.00 was Un invested.

Business Unity put the cost per job investment at R660,000.00 and the IMF put the figure at R420,000.00 per job in the USA.

According to the latest data 17,000,000 are unemployed meaning R8,500,000,000,000.00 (R8.5 Trillion) plus additional Trillion investment is required.

Summary:
Investment Required to give everyone a job R10.5Trillion
Federal Debt R3.7Trillion
Municipal Debt R3.5Trillion
SOE Debt R0.75Trillion
Citizen Debt R2.00trillion est

Total required R20,450,000,000,000.00

The debt clock ticking up at R6,750.00 per second, whilst murder rate is 2 people per hour. Cleary South Africa is at war with itself.

At least countries which take loans to go to war try and achieve something, anc has not achieved anything burning through cash at a rate only Zimbabweans know how to.

We are not Zimbabwe so take your theory and shove it up your…

Get your head out of your…
It’s not a theory it is a reality, we are not far behind and making the exact same mistakes that they did.

SA = Zim-20 years
RamaANC has promised EWC and a bunch of other emotionally sensitive points to keep the governing party in Power.

This Covid 19 has simply accelerated the downward spiral and shown the true colours of this fake libaration organisation whose soul is corrupted to the core.

What are the 21,000,000 unemployed people who have no income going to do with their lives, they have no purpose their lives have become meaniless and in the face of a handful of communists driving Luxury Cars, they cannot not even drown their sorrows and numb their brains with Alcohol and or Cigarettes to soften the blow.

With the average slave costing $437.50 per month (R7,581.87) the government has declared R3,200.00 ($184.65) as minimum wage. $184.65 is a lot closer to $32 Zim wage than what it is to $437.50.

You are completely disillusioned, brainwashed and blinded by your own ignorance to think that SA is not a Humanitarian catastrophe which has exploded in slow F motion and land in the exact same black hole which we see Zimbabweans live in.

No we just alittle country 500km south of Zimbabwe…

….so easy to trigger Dadape

Classic IQ deficient commentor who struggles to debate

ever heard of a coup?

You really miss the Nats don’t you?

Are you Nuts?

My most optimistic view is that the economy will shrink by
MORE than 15 % – probably closer to 20 %. Total unemployment is already past 50% so ja – viva ANC – well done !!!!!!

Entrepreneurship drives economic activity. Governments parasitise on economic activity because politicians have to create a market for themselves by taxing some the bribe others. Governments implode when they run out of entrepreneurs to fund this process.

The lockdown measures are the first instance on earth, other than Xhosa Cattle Killings during 1856, where nations intentionally destroyed economic activity to save themselves from some imaginary force. Lockdown is an act by politicians to create a market for themselves by destroying the entrepreneurs on whom they depend to fund their own existence.

Coronavirus does not destroy its host. Nature is way too clever to make such a mistake. No natural pathogen will destroy its host because that would make the system unsustainable. Covid kills less than 0.1% of the population. This motivated overeager and ignorant central planning politicians to jump at the opportunity to get some mileage among even more ignorant voters by killing a large percentage of entrepreneurs. Lockdown measures killed the economic activity that is supposed to fund government projects. Politicians killed a larger percentage of entrepreneurs than coronavirus killed people.

We can apply no lessons from the 2008 Financial Crises to address the fallout. Money printing can restore demand, but it cannot restore supply. Lockdown triggered stagflation. The supply network is bankrupt and it will take a decade of entrepreneurial activity to restore it. Central Banks are impotent in this instance. Nature uses the tool of famine to solve the problems that were created by politicians and that Reserve Banks fail to cure. The size of the population will have to shrink to find equilibrium with entrepreneurial activity like it did after the Xhosa Cattle Killings.

Or a great deal of wealth will be destroyed and not as many lives as folk give what they have to help their neighbours

“If SA does contract at the level that the IMF anticipates (-5.8%) then this recession will be approximately four times deeper than the recession of 2009. If the impact on employment mirrors this trend on economic growth then as many as 4 million jobs may be lost in the coming years.”

What an absolute pipe dream of a model was used here.
How is 2019 or 2020 anywhere the same as 2007 & 2008 for South Africa in terms of GDP growth? We approached the financial crisis off GDP growth figures of above 5% and even though it dropped leading into it, we still recorded growth of 3.2% and they want to use that to model what we can expect in South Africa looking out towards the next 4 years? South Africa’s economy was already showing negative growth before the government decided to place the country under lockdown.

I have a better chance of being right by sucking numbers out of my thumb than looking at this model that predicts only -5.8% and 4 million job losses over the coming years.

Before 2020 arrived South Africa already had the issue of its population growing faster than the economy and now with all the decisions being made by the ANC we have seen the economy absolutely obliterated and sectors such as hospitality and tourism could take many years, maybe even a decade to recover to its former self. That is if the ANC does not take additional steps to kill off economic sectors.

South Africa has already seen 3 million people losing their jobs in just a few months, so how realistic is that 4 million job losses over the few years. I expect it to be a complete bloodbath. Our expanded youth unemployment figure was already around 70% before lockdown.

Wake up and smell the Napalm dropped by the ANC. This is only the beginning and there has been at least a decade worth of warning.

….”it’s ONLY the BEGINNING” 🙁

Three things to remember as you get old; Never pass up a bathroom. Never waste a hard-on. And never trust a fart. – Jack Nicholson.

and You can’t handle the tooth 😉

The outlook in terms of modern economic wave theory and the Austrian business cycle theory, predict the pattern of fallout after economic catastrophe with at least 3 waves to the recovery.

The COVID curve breakers that have rolled over us, or are set to roll over us I call Groundswells, Reefswells and Rogueswells. They are smashing down us along with the global economy.

Initially the first downturn we have already noticed- the collapse in profitability (first wave) of businesses. A lot of jobs are lost here.

The next wave rolls into investment spending (second wave) that drops off rapidly, such as we are seeing from SAB and Heineken (and probably ABInbev) and the like currently.

Then into a confidence/trust-induced secondary credit contraction in the banking sector (third wave). This is when the most severe haemorrhaging of labour will be happening, alas some way away but on its way folks! This will be the third wave. Kotsi!

The crises commonly last between 2-3 years, perhaps longer. A V-shaped recovery is NOT happening this year folks. With a stretch of pulling together, planning, harmonising, gigging and grooving, 2022 might be possible. 2023 more likely.

In Natal-surfer-speak, it will take a Shortboard, a Longboard and a Funboard to Line-up the A-frame and kick-out like a Kahuna.

Viva the Fourth Industrial Revolution- embrace her as your friend comrade surfers of life!

#disruptor #internovate #surfthecurve #localise #uplift #cooperate #abundance #flowithyourgo #bushmanise #icicwecode

End of comments.

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