Unemployment forecast to soar

• Economists and ratings agencies warn about downgrades and slow economy with jobless rate rising to 30%

The already historically high unemployment levels look set to skyrocket as the economy weakens, fuelling fear of another credit-rating downgrade in November. Unemployment has remained at 27.7% for the third quarter running.

Historically high unemployment levels are set to skyrocket as the economy weakens, fuelling fears of another credit rating downgrade in November.

Unemployment had stayed at 27.7% for the third consecutive quarter, Statistics SA said in its Quarterly Labour Force Survey on Tuesday. It is 0.6 of a percentage point higher than the same period in 2016.

SA’s high unemployment rate has consistently been raised by credit ratings agencies as a major obstacle to the country’s economic growth prospects.

“The statistics provide further evidence that general economic conditions in the country remain subdued and that the economy is struggling to create jobs,” said Nedbank economist Johannes Khosa.

“The outlook for the job market remains uncertain in the short term as the uncertain policy and political environments, and the threat of further credit rating downgrades, will depress business confidence.

“This will cause the private sector to delay major investment plans and capacity expansion,” Khosa said.

Finance Minister Malusi Gigaba’s maiden medium-term budget policy statement has been received badly by both investors and ratings agencies.

Moody’s Investors Service, which still has SA rated one notch above junk, has made it all but certain that the country will be downgraded in November as the government departs from its policy of fiscal consolidation.

On Monday, Zuzana Brixiova, Moody’s vice-president and lead sovereign analyst for SA, said: “The lack of fiscal consolidation in the budget is also a setback to already feeble business confidence and growth.”

Last week, Fitch Ratings also released commentary critical of the budget in which it wrote: “The change in direction of policy-making away from a focus on fiscal consolidation, that we anticipated as a consequence of March’s Cabinet reshuffle, is under way and occurring faster than we had expected.”

Craig Pheiffer, chief investment strategist at Absa Stockbrokers and Portfolio Management, said: “Evidence of fiscal slippage … together with low growth, political instability, growing unemployment, high levels of poverty and inequality, and growing levels of debt and debt-servicing costs — the local currency investment grade credit rating is in danger.”

Labour analyst Tony Healy expects unemployment to snowball and increase drastically in coming quarters. For the past 20 years, it had remained between 25%-28%.

“If anything, unemployment is going to go higher. If we drop another credit rating notch, debt and funding become more expensive and we become less of an investment destination. It’s more likely that the unemployment levels are going to touch the 30% level.”

Cosatu spokesman Sizwe Pamla said the numbers were not surprising, given that the government did not have a coherent plan to tackle unemployment and create jobs.

“This unemployment situation is likely to get worse because there is currently no sense of urgency in discussing and developing responses to automation and mechanisation in the country,” said Pamla.