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SA economy could take four years to recover from Covid-19

It only needed 15 months to get over the 2008 global financial crisis.
Ten years ago less than 10c of every R1 collected in tax was used to pay the interest on government debt; it’s now R1 of every R4, says Absa’s chief economist. Image: Bloomberg

The South African economy will take three to four years to get back to where it was before the Covid-19 pandemic, according to Absa chief economist and head of research Jeff Gable.

This is a very different outlook to the global financial crisis in 2008/09, when it took the economy only five quarters to get back to where it was before that crisis – although it took half a decade to recover the jobs lost, he said.

Read: SA virus-hit economy shrank most in 100 years in 2020 (Mar 9)

Gable was speaking at a Ford SA industry update breakfast on Tuesday at which the motor manufacturer reaffirmed its commitment to supporting the national government’s Covid-19 initiatives, by donating R2.5 million to help fund the enhancement of the national Occupational Health Surveillance System (OHSS).

The OHSS, a programme implemented by the National Institute for Occupational Health (NIOH), monitors workers in the public and private sectors using data supplied by employers on Covid-19 infections in the workplace under the direction of the Department of Employment and Labour.

This data, which is used to inform appropriate interventions and mitigate the spread of the virus, helps to identify industries and occupational groups at risk of infection and analyses the impact on industries and occupational groups.

Jobs

Gable said only a few jobs were created in the South African economy in 2019, but 600 000 to 700 000 jobs were destroyed in the second quarter of 2020 and very few of those jobs have come back, with many sectors of the economy “really suffering”.

Gable said the hospitality, transport and construction sectors are more than 20% smaller than they were before the Covid-19 pandemic and “all those sectors are likely to rebuild very slowly going forward”.

He added that Absa Research is worried about the low level of business and consumer confidence, saying that the job destruction in the economy is real and will take a long time to recover.

Plus South Africa has an infrastructure shortfall, including Eskom, which makes it more difficult for some of the types of investment that will pull the economy out of recession to be made.

Load shedding

“Despite the economy being so much smaller today than it was a year and a half or two years ago, we are facing load shedding again,” he said.

“It’s an inconvenience at home but tragic in parts of the economy where it is really expensive to be able to offset their grid being out.

“Even in this very difficult economic environment, we still don’t have reliable electricity supply and that is not going to fix itself for several years,” he said.

The one thing that should worry everyone

Turning to the recent national budget, Gable said Finance Minister Tito Mboweni delivered “a very brave budget with some difficult messages”.

Gable said this was driven by the dramatic increase in South Africa’s debt, adding that what really worries Treasury and the markets – and should worry everyone – is that R1 out of every R4 collected in tax is simply used to pay the interest on government debt rather than to pay for new infrastructure, teachers, nurses, doctors or police officers.

“That number 10 years ago was eight cents or nine cents out of every R1,” he said.

Gable said the government could address the budget shortfall by borrowing less by raising more tax – or spending less.

And the easy way out is to “pop more taxes” on the economy, he said.

“We have certainly seen that over the last decade but the message that we had from the budget was exactly the opposite,” said Gable.

Sars giveth, but Sars also taketh away

“Corporate income tax in a year’s time is going to fall by one percentage point.

“Personal income tax rates are the same but the bands have moved by more than normal, which should put a little bit of money back in your pocket.

“They will take this again from you when you fill up your car [with petrol] or when you buy booze or cigarettes,” he said.

“But this is the way the world works.”

Spending cuts

Gable said it was brave to offer business and taxpayers a tax reduction and cut spending elsewhere in a difficult political environment and an environment where many South Africans are suffering.

“Whether it will be a success or not is hard to see, but it’s certainly a very big change in intent from where the government has been to date.”

Gable said “an awful lot of the pain” is expected to fall on public sector workers, who will get zero increases for several years.

“That is going to generate an almighty fight.

“It’s politically very brave and it’s not obvious how this is going to turn out.”

Read:

Interest rates

Commenting on the outlook for interest rates, Gable said financial markets are already starting to price in a slow pace of interest rate hikes.

He said that if these hikes are delivered, they might negate some of the boost that housing markets and new and used vehicle markets are currently receiving from the low interest rate environment.

“We know that the Reserve Bank’s monetary policy committee has been split. To date it’s been split, with a small minority of members believing that interest rates should fall further.

“But markets are telling us that they expect that to flip and ultimately rates to go higher within the next 12 months.

“It’s something to watch,” he said.

Listen to Nompu Siziba’s interview with Ford SA executive director of government affairs, Dhiren Vanmali, on the Ford/Department of Health Covid-19 surveillance partnership:

Listen to Citadel chief economist Maarten Ackerman discuss the GDP (or read the transcript here):

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How many years will it take for South Africa to recover from the plaque of the ANC – if ever ?

@Roy – What is your definition of recover? What does the ANC government understand as recover?
Most outsiders see recovery as “prosperity”. Good job rates (fewer people without work), less crime (more jobless people, create more crime), rand strengthen against major currencies, tourist come back to SA (including repeat tourist), JSE at highs where companies provide appropriate returns/dividends, no power cuts, good infrastructure, buzzing sport competitions, smiling people (of all races and areas- as economy is directly linked to people’s lives).

Sadly the ANC cares only for holding power, nothing else. All the concepts you mentioned above are irrelevant. I refer you to the history of EVERY post-colonial African country

You only have to read the plans that Carl Niehaus and Ace Magashule have for South Africa when Ace becomes president to realise that the recovery period of four years is wishful thinking at best. Read the Daily Maverick article to get your heart rate up.

The problem is that the virus gave the economy the flu but the ANC gave it bubonic plague.
Fatal — No recovery possible !!

The devastating effects of ANC corruption will take much longer to overcome, if at all possible.

For all talk of revolution and uttee dislike for white monopoly cap and merit, our comrades have achieved been given bronze medal in the 2020 Bloomber Misery Index
https://www.bloombergquint.com/global-economics/misery-ranking-will-show-u-s-getting-worse-versus-rest-of-world

I guess some more singing, dancing and dodging accountability whilst ensuring that every is more poor with higher taxes and less electricity will help us gain that golden title of the world’s most miserable country.

On the other hand it’s very very sad… hopefully the municipal elections will force some change if not no recovery will take place.

We have had load shedding for over a decade now.

Anybody that thinks that there is any chance of this anc lot fixing it now needs his head read.

What will change??? You have to think that they will get new leaders with brains?? Where will they come from?? New anc leaders are old anc voters. You think that has brains??

Come on man. TSK!!!

The abject failure to apply minds to power generation renewal in sufficient time to prevent placing limitations on the economy was only the first stage of this aspect of the incompetence. Now the 2nd stage sees ongoing failure to apply minds and take the essential action. The collapse of the grid beckons and will arrive suddenly by a typical cascading, nation-wide black out. Attempts to recover will require black star islands of the grid with eventual reconnection bringing a repeat collapse. The nation will see highly populated areas without power for extended periods which will quickly become weeks at a time and probably more.

Please would Moneyweb do some research on the impact of Covid on last years birth rate.

China fell 15% as has most of Europe. What happened here and what will the impact of more or fewer children have on our economy going forward?

Contrary to belief birth rates are in decline and have been for almost the last 10 years with the average woman who has children on average has 2.4 kids. Current birth rate is at 19.8 for 1,000 people were as in 2011 it was 23.1

https://knoema.com/atlas/South-Africa/Birth-rate

The scary stat is that for people who are aged 15 and above, only 36.7% are employed, which ranks us at 175 out of 182 countries.

Interest rates will never go up again (meaning more than 1-2%), globally interest rates are forever on a downward slide for last 30 years or more.

That really depends on what inflation does.

Inflation is like politics, they manipulate stats allover, inflation is truly far higher than the official figure. Milk increased more than 200% in 10 years.

Four years for COVID recovery. About 20 to 30 to recover from the ANC. I’d say SA is pretty much done for the next 2 or 3 generations.

The effect of power cuts, foreign selling of our bonds and equities and a much higher fuel price giving inflation a tailwind are factors that will effect our growth.

But bad policy( EWC, BEE), stealing, wastage, a captured judiciary and broken SOEs are a further tailwind.

Then add on very poor leadership:
1. Mr Hot Chickens Patel
2. The Frog boiler in Chief
3. The hat wearing former General
4. The pharmacist tax collector turned de facto chief engineer of Eskom and delusional SAA grandstander
5. Comrade Blade and the livid students
6. Poor Tito-cannot work out if he supports Gorbachev or Reagan
7. A judiciary which is laughed at with contempt-our Uncle Jacob has made it clear that the highest court is toothless..to him
8. Accused number two with Aces up his sleeve. In China we know where he would be….

Those that work for a living are getting less and those voting for a living are getting more. SA had one of the highest unemployment rates after the Zuma/Gupta years and COVID made it worse. We now have the highest unemployment rate in the world. SA is in a world of trouble, and with a government more focused on fighting internal battles than focusing on growth and policies that will support that, I have little hope for any meaningful recovery. We are ruled by self centered immoral narcissists, corrupted by greed with no social conscience and child like mentalities.

At least South Africa is #1 on some list.

As it is with the country’s problems the ANC’s attitude is ‘what’s the rush’. Eskom issues started 13 years ago and are projected to continue for at least another 5. That in itself would be enough to bring a government down in a normal society.

I can’t insert them but I guess there are three, maybe four, charts that sum SA under the ANC regime up:

Per capita GDP declining & national debt increasing; US$
Eskom electricity production declining
Population growth increasing

Only one path from these; down.

The economy was crap before Covid. Looting and stealing is the norm. How long will that take to recover from?? I say let’s have a discussion around my fire pool and work this out.

End of comments.

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