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