By: Isaah Mhlanga – Chief Economist | Khanyisa Phika – Economist | Murendeni Nengovhela
Significant rise in the unemployment rate reflects the impact of the Covid-19 lockdowns on SA economy
Economic Analyst 13 November 2020 Highlights
- South Africa’s official unemployment rate surged to 30.8% in Q3 2020 following a definition-driven drop to 23.3% in Q2 2020 due to the lockdown restrictions that disrupted the labour market.
- The number of unemployed people increased sharply by 2.2 million to 6.5 million in Q3 2020 after declining to 4.3 million in Q2 2020. Although, this is still below the 7.1 million recorded in Q1 2020.
- The number of employed people increased by 543 000 to 14.7 million in Q3 2020 from 14.1 million in the previous quarter.
- The expanded unemployment rate rose to 43.1% in Q3 2020 from 42% in Q2 2020 and 35.5%% in the first quarter.
- In the medium term, we expect the labour market to remain subdued and unemployment at high levels despite the further easing of lockdownregulations.
The official unemployment rate rose to 30.8% in Q3 2020 following a 23.3% decline in Q2 2020, significantly better than the Reuters consensus expectation of 33.4%.
Statistics South Africa (Stats SA) published the Quarterly Labour Force Survey (QLFS), which showed that the annual official unemployment rate surged up to 30.8% in Q3 2020 following the 23.3% decline in Q2 2020 which was mainly due to rigid definition of unemployment. Due to the stringent lockdown measures imposed at the begining of the second quarter, people could not physically seek work, thus they were not classified as unemployed. The rise in unemployment is due to some discouraged workers returning to the labour market supported by the lifting of lockdown regulations in Q3 2020. The expanded definition, which includes discouraged job seekers, increased significantly to 43.1% in Q3 2020 from 42.0% in the prior quarter.
The number of employed people increased by 543 000 to 14.7 million in Q3 2020 from 14.1 million in Q2 2020 well below pre-pandemic levels. This represents a 3.8% quarter-on-quarter increase and a 10.3% year on year decline in employment out of the 39 million working-age population. Meanwhile, the number of unemployed people increased by another 2.2 million to 6.5 million, compared to the 2.8 million drop in the previous quarter, although this is below the 7.1 million recorded in the first quarter of the year. As such, the number of not economically active persons (NEA) declined by 2.6 million with about 225 000 people classified as discouraged job-seekers. The movement was proportionately more towards the unemployed than for the employed, contributing 7.5 percentage points to the official unemployment rate of 30.8%, the highest rate on record.
Significant employment increases were recorded in the formal sector which increased by 242 000 (2.4%), with the number of employed people grew in eight of the ten industries. The finance industry recorded the largest job increases of 200 000 (9%), followed by the community and social services with 137 000 (4.2%) and 116 000 (11.5%) from private households. Declines in employment were recorded in the utilities and transport sectors which shed 23 000 (-19.9%) and 7 000 (-0.8) jobs respectively. On an annual basis, total employment decreased by over 1.7 million (-10.3%), with the number of unemployed people dropping by 3% to 201 000, while the number of NEA increased by 16% to 2.5 million.
In the medium term, we expect the unemployment rate to increase with subdued job creation in a lacklustre economic environment despite the further easing of lockdown regulations.
Given the stringent lockdown, which shut down most of the economy, the previous quarter saw a decline in the labour force rather than the result of an increase in jobs, leaving 2.2 million South Africans unemployed. With the pandemic still in our midst and a vaccine yet to be approved, it is difficult to project when the labour force will return to normal. As the lockdown measures continue to be lifted, it is expected that more people will return to the labour force, although it’s unclear whether they will be resuming their previous jobs.
Earlier this year the IMF projected SA’s unemployment rate to increase from 28.7% in 2019 to an average of 35.3% in 2020 before moderating to about 34.1% in 2021 due to the ravaging effects of the coronavirus pandemic on the already embattled local economy. We project that approximately 1.7 million jobs will be shed this year, higher than over 900 000 formal jobs lost during the global financial crisis. These revisions are in line with the deep contractions projected in real GDP for 2020, ranging between -8% and -11%. Real GDP growth tends to recover at a much faster pace than that of employment. After the 2009/2008 global financial crisis, a notable recovery in GDP growth took almost a year to reach pre-crisis levels however, employment reverted near its pre-crisis peak over four years later. There has been a gradual improvement in activity and producer managing sentiment has gained positive momentum, as the lockdown restrictions continued to be lifted, however, the resurgence of the virus in Europe and the country is likely to constrain global demand, subsequently put pressure on the growth of employment levels. As such, household incomes and spending will likely remain low due to the risk imposed on future incomes.
Figure 1: The official unemployment rate surged to 30.8% in Q3 2020, much softer than market expectations of 33.4%.