Forecasts are pointing at a ghastly future
Some of the world’s leading economists, or at least those employed by some of the best-equipped institutions, have been busy sucking their thumbs this past week.
And if their findings hold any lessons for SA, it’s not looking good.
The daily drip of economic forecasts and business failures tell a depressing story, no matter what trade & industry minister Ebrahim Patel would like to believe, but looking elsewhere could show that even our gloomiest forecasters, such as Business for SA (B4SA), are probably on the optimistic side.
IMF head Kristalina Georgieva last week said reports from some countries were coming in below the assumptions that informed the fund’s prediction of a 3% drop in global GDP in 2020. Their forecast for a 5.8% drop for SA in 2020 always looked unrealistic, even less bearish than the Reserve Bank’s 6.1%.
Just looking elsewhere tells us we should be worried.
We could start with the UK and the Bank of England’s assessment. At the start of the Covid-19 crisis, it became fashionable to ask if this could herald the worst economic performance since the great recession of a decade ago.
As the severity of the situation got more clear, economists started talking about the worst calamity since the Great Depression about a century ago. The Bank of England took the gloomy scenario a step further and predicted the biggest slump in not one but three centuries, with a GDP drop of 14%.
What makes this rather scary from an SA perspective is that while the UK’s health response has fallen rather short, its economic mitigation measures have been among the most aggressive and proactive.
It hasn’t taken any of the selfharming measures that ministers here say are necessary. In fact, alcohol sales were among the few bright spots in an otherwise disastrous month for retailers in March. The central bank there has cut interest rates to almost zero while pledging to buy £200bn (R4.5-trillion) in government bonds.
In that context, SA’s own stimulus measures and about R12bn in bond purchases by the central bank so far look small. Even without any modelling of our own, which the trade & industry department seemingly sees as unnecessary, the only conclusion one can reach is that SA is going to pay a heavy economic price for its response to the crisis.
While we headed into the coronavirus outbreak on the back of the longest economic slump and highest unemployment rate on record, the reverse was true of the US. In March, the jobless rate in the US was 3.5% in March.
Data at the end of last week showed that it jumped in just one month from historic lows to the highest since records began in 1948. That jump to 14.7% for April is about half of SA’s official, and probably out of date, 30%. More than 20-million jobs were lost in one month, making it the worst since the Great Depression.
In a scenario likely to be repeated in SA, the job losses were widespread across the board. According to a New York Times analysis, the job losses were not confined to the obvious candidates, such as waiting staff at restaurants or those who work at airlines. Industries from law firms to health care shed jobs.
As we see more examples of small businesses collapse and traditionally higher-paying jobs disappear, the advocates of solidarity, or wealth taxes, may have to look elsewhere.
At the start of the lockdown, the worry was whether coffee shops or barbers would have the cash buffers to survive a temporary period when their potential customers were stuck at home.
As we enter the seventh week with no end in sight, the situation has become a lot more serious, and the worry is whether those customers themselves will survive.
And one need not be a particularly skilled economist or modeller to work out what will happen to this economy if the white-collar workers who would normally be going to restaurants, coffee shops and holidays emerge on the other side of this crisis with no or significantly reduced incomes.
With all of this happening, it ’ s no wonder the government ’ s strategy is rapidly losing public support.
Reports of wide-scale hunger and retrenchments show the costs, while the government, concerned more with enforcement of petty and unreasonable regulations that add to people’s hardship, has failed to show how the sacrifice is worth it.
Countries with heavier infection rates and bigger death tolls than SA are already looking at opening up their economies. Here we are left guessing what the end-game is.
We all know that the health situation can only get worse and it probably is already much grimmer than the official statistics indicate, but also that we can’t keep the economy closed indefinitely. Trade-offs obviously need to be made, and the government needs to be explicit on what they are.
Leadership might be required now, if only to show a dejected population that there is light at the end of the tunnel.
COUNTRIES WITH HEAVIER INFECTION RATES AND BIGGER DEATH TOLLS THAN SA ARE ALREADY LOOKING AT OPENING UP THEIR ECONOMIES