Jeff Gable
It will, most likely, take half a decade before the South African economy returns to the level it was at the end of 2019, says Absa chief economist Jeff Gable.
“And 2019 was a miserable year for South Africa – the economy grew barely 0.5%. On top of that we weren’t doing great in the previous years either. So the baseline of 2019 is very undemanding.”
In January, Absa’s forecast for economic growth was between 1% and 1.5%, with the expectation that at the end of 2021 the size of the economy, adjusted for inflation, would be roughly 3.5% bigger than it was at the end of 2019.
Then, however, Covid-19 happened.
Now Gable expects that the domestic economy will still be 4.5% weaker at the end of 2021 than at the end of 2019, with “the end of 2019 far from a promising position for South Africa”.
“It will be late 2024, 2025, before South Africa can get back to where we were at the end of 2019.
“The impact of Covid-19 is very substantial. It is going to be very long-lasting.”
Industries in South Africa that will show a greater than 20% contraction this year will be catering/accommodation (greater than 60%), construction and the motor trade, says Gable.
The manufacturing, mining and transport sectors are likely to contract by between 10% and 20%, with the real estate, electricity, personal services and retail sectors to shrink by between 5% and 10%.
The only two sectors to show growth will be telecoms and agriculture, with telecoms benefitting from the increased use of IT services during Covid-19, and the agriculture sector reaping the benefits of a good rainy season.
With the Covid-19 global economic shock bigger than the great depression in the early 1930s, it is expected that South Africa will continue to shed jobs, adds Gable.
With an estimated million jobs already lost in the formal sector, “I have a strong expectation that it will get worse before it gets better”.
If the forecast is that South Africa will take a half a decade to return to where it was in 2019, it means that businesses will, in the meantime, most likely be smaller than in 2019 – which means that their ability to hang on to excess staff will “probably be pretty modest”, says Gable.
The one-million jobs already lost will add to South Africa Inc’s smaller wallet, with between R80-billion and R300-billion in consumer spend disappearing.
Government’s drive to decrease the public sector wage bill is expected to further add to the drop in consumer spending.