Unemployment underscored by weak economic activity – 1 in 3 unemployed in SA

Economists say the increasing unemployment numbers are underscored by weak economic activity, as the Quarterly Labour Force Survey for the second quarter brought the news that the unemployment rate in South Africa again increased, this time by 0.6% to 33.5%.

Thanda Sithole, senior economist at First National Bank(FNB), says the subdued labour market underscores the challenges posed by weak economic activity. “The economy remains hampered by structural constraints, with cyclical demand lagging due to significantly constrained consumers.

“While economic growth is essential for employment gains, our projections indicate that growth will remain just below 2% over the forecast horizon. Nevertheless, modest net employment gains are anticipated, driven by improving business sentiment and growth.

“However, to make meaningful progress toward the 2023 National Development Plan targets, robust and sustainable economic growth of around 5% will be necessary.”

Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, said the outlook for the job market remains uncertain. “Economic conditions have been improving since the start of the year and some structural constraints have eased somewhat, with load shedding reduced and logistical services improving.

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Many challenges and low demand

“Global demand has also increased slightly. Given these positive outcomes and hopes that the formation of the Government of National Unity will accelerate structural reforms, business confidence improved in the second quarter.”

They believe this will support economic activity and possibly sustain employment growth in energy-intensive industries and exports in the coming months. However, they say that employment in the services industries could remain stagnant as restrictive monetary policy continues to weigh on domestic demand, hurting confidence, constraining consumer spending and containing fixed investment in the short term.

“In addition, some producers might continue to focus on restoring their profit margins, which were depleted by the severe disruptions and surge in operating costs last year. At the same time, public sector employment will remain restricted by government caps on staff numbers to support necessary fiscal consolidation.

“Consequently, job creation will remain weak in 2024, with employment drifting sideways. A more meaningful recovery is likely to occur next year as inflation dips towards 4.5% and the Reserve Bank reduces interest rates more significantly, creating space for faster growth in domestic demand and job creation.”

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Economy under more strain than we thought

Jee-A van der Linde, senior economist at Oxford Economics Africa, says recent data releases for the second quarter suggest the economy experienced more strain than they originally thought, despite a load-shedding reprieve throughout the quarter.

“South Africans have grown accustomed to remarkably high unemployment and have become increasingly dejected. However, there is a general sense of cautious optimism that demand will improve gradually throughout the second half of the year, which should translate into stronger economic activity.

“We forecast that the South African economy will grow by 0.8% this year, marginally higher than the 0.7% projected during the previous quarter. On the back of improved confidence following the formation of the Government of National Unity, we anticipate that a gradual build-up of positive momentum in the second half of 2024 should lead to faster real gross domestic product (GDP) growth of 1.6% next year.”

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Increase in unemployment not unexpected

Prof Raymond Parsons, economist at the NWU Business School, says the increase in unemployment was not unexpected against the background of previous weak economic data that negatively influenced job creation.

“The GDP growth figures in recent quarters have been disappointing and it was inevitable that poor growth would be reflected in yet higher unemployment. Narrowly defined, one in three of the working-age population is now unemployed. The continued high level of youth unemployment remains of great concern.”

He says the latest overall unemployment figures again reinforce the urgency outlined by the Government of National Unity for South Africa to prioritise much higher inclusive, job-rich growth. “Already, the prospects for stabilising and eventually reducing the high level of unemployment are being improved by the phasing out of load shedding, higher infrastructure spending, stronger business confidence and reduced policy uncertainty. These could, in time, build a sustainable platform for increased job creation in future. “

However, he points out, it also reinforces the need to expedite those structural economic reforms that will turn the South African economy around sooner rather than later and put it on a much higher growth trajectory.

“Current forecasts of about 1.0% GDP growth this year are simply not good enough. The prevailing bad news on the unemployment front can, therefore, only be converted to better news in future if the economic remedies South Africa needs are given high priority.”