Covid economic recovery still fragile

By Neva Makgetla and Gillian Chigumira

Johannesburg – The latest economic data highlight that the economy has recovered better than expected since April, outperforming International Monetary Fund forecasts.

However, the recovery is threatened by the second wave in the COVID-19 pandemic, fuelled by Christmas socialising and travel. Moreover, the planned effective termination in January of the two largest relief programmes – the UIF Temporary Employer/Employee Relief Scheme and the COVID-19 Special Grant, which together reach well over 5-million people – could set the recovery back significantly.

This cautionary note emerged from the third-quarter Real Economy Bulletin (REB) released by Trade and Industrial Policy Strategies.

The REB conducts a deep dive into the latest economic data. It notes that the quarterly data on the gross domestic product and employment obscure the rapid monthly changes during the pandemic.

The economy shrank sharply in April but regained much of the lost ground in May and June. In constant rand terms, exp o r ts ex c e e d ed Ja nu a r y figures in the third quarter, driven mostly by higher prices for gold, as well as higher production of platinum and autos.

Manufacturing sales in September were equal to those in March in constant rand terms, although growth was slowing. In contrast, despite the lifting of restrictions, accommodation and catering remain “the hardest-hit industries”, with sales still more than 50% below pre-pandemic levels.

The pandemic has deepened inequalities globally and in particular in South Africa. The REB points out that “job losses among formal sector managers and professionals, who held almost a third of all formal jobs, fell just 1% or around 35 000. In contrast, for other formal workers, employment shrank 12% [about a million].”

A similar picture emerges when comparing job losses in formal as compared to the informal sector, which saw a 22% decline in employment in the second quarter and regained 8% in the third quarter. As a result, the informal sector “suffered a net loss of over 450 000 positions”.

More broadly, employment rebounded only 4% in the third quarter after dropping 14% in the second quarter. Since more labour-intensive jobs tend to be at higher risk from the infection, they are unlikely to return until the pandemic is fully under control.

In these circumstances, the planned termination of key relief programmes in January will see many households going hungry.

Makgetla is a senior researcher at Trade & Industrial Policy Strategies and Chigumira is an economist at Trade & Industrial Policy Strategies.

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