Body blows to the USA economy – which has seen unemployment claims increase by some 17 million in the past three weeks – come as a warning to South Africa, according to an analyst.
Former Goldman Sachs head, and now Yale Senior Fellow Colin Coleman told Fin24 the possibility of 1.5 million job losses locally, or some 10% of the roughly 16-million strong workforce, is not unimaginable.
South Africa is also battling record unemployment levels at 29%.
Another 6.6 million Americans submitted claims for unemployment benefits in the week ending 4 April, the US Department of Labor reported on Thursday.
This was over and above the record number of jobless claims submitted the previous week – 6.6 million claims, later revised upwards by some 219 000 to over 6.8 million, Fin24 reported. The previous week’s average was revised up by over 54 000 to 2.67 million.
Before the current wave of unemployment, the previous high was in May 2009, when claims also came in at just over 6.6 million.
The US labour force reached a high of 165.6 million people in February this year, meaning the unemployment claims in just three weeks amount to over 10% of that number, Fin24 reported.
Coleman says the severe toll on the USA economy is a warning shot to South Africa.
“There are different dynamics between the world’s biggest economy and South Africa’s. We come from a high base of unemployment, but we don’t have the fiscal firepower to protect our economy the way that the USA has,” Coleman told Fin24.
Economic mitigation strategies in the USA include interventions like the $2 trillion monetary stimulus announced on Thursday morning by the Fed and a $2.2 trillion fiscal package passed by US legislators.
“That level of fiscal and monetary response is massive, and we just don’t have that fire power,” Coleman explained.
According to Coleman, the possible spike in unemployment in South Africa is likely to occur without any significant fiscal mitigation, given the economic slowdown and resultant shock to GDP growth, expected to result in around a 6% contraction in 2020.
“South Africa needs a fiscal intervention equivalent to around 5% of GDP, or R250bn,” he argued.
There are, however, some measures in place to mitigate the damage for South Africa’s most vulnerable, and some analysts believe this could stem the economic bleed.
According to Econometrix Chief Economist Azar Jammine, temporary relief provided through the Unemployment Insurance Fund may prevent the country from seeing the same kind of spike in claims for layoffs as the USA, provided the lockdown period does not exceed the capabilities of the fund.
The biggest challenge, however, will be access.
“Unemployment Insurance Fund apparently is smothered with applications its struggling to process. It’s a major challenge to try and distribute [R3 000] a month to 17 million people all of a sudden,” said Jammine.
“That is why some of the people have been arguing that one of the solutions right now is to broaden the child support grant or social grant or just increase it because the mechanism is already in place for people to queue and get their funds quickly,” Jammine added.
Jammine said although 1.5 million job losses are possible, the escalation may not be that severe.