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Economists predict SA’s economy could go into depression

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Some economists have predicted that the South African economy could go into a depression if the current conditions continue. The economy was already in a recession before the COVID-19 pandemic put a spanner in the works, sending it into a tailspin.

The National Treasury and the Reserve Bank expect the economy to contract by as much as 6.1%, but some economists expect even worse numbers.

The world finds itself in unchartered territory because of the COVID-19 pandemic and South Africa is not excluded.

Supply chains have been disrupted and trade has almost come to a standstill. Many companies have been forced to shut their doors as governments try to curb the spread of the coronavirus.

Some economists say recovery is not in sight at the moment, but rather a depression – which is a severe and prolonged downturn in economic activity – is likely.

Business for South Africa says between one and 4 million jobs are at risk:

Recessions

Economic depression is defined as recessions lasting longer than three years or resulting in a drop in annual Gross Domestic Product of at least 10%. Some companies are not expected to be able to re-open when the lockdown finally comes to an end. They will go down with hundreds of thousands of jobs as well as the much-needed tax revenue.

Chief Economist at the Centre for Risk Analysis, Ian Cruickshank, expects unemployment to continue its upward trajectory.

“Extending into depression is a possibility. What is depression? – and the difference between a depression and recession? – A recession is at least two consecutive quarters of where we have quarterly GDP data contract. A depression is when this goes on and on and we don’t see a recovery….the only letters that can define the stage where we are is RIP….. We need stimulus measures which can turn the potential depression into a recovery situation that is not in sight at the moment though.”

The higher unemployment will present more pressure on the already strained government finances as more people will require assistance.

Meanwhile, Southern Africa – Towards Inclusive Economic Development (SA-TIED) has released an initial analysis of the impact of COVID-19 on the South African economy.

 In the video below, Professor Channing Arndt, who is a leader in the programme discusses the economic situation: 

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