Professional services company PwC has released its latest economic outlook, which includes forecast scenarios for South Africa’s lockdown levels and their likely impact on the economy.
The report, released on Tuesday evening (June 15) just before the country transitioned to a level 3 lockdown, focuses on both upward and downward scenarios and includes a baseline assumption.
Based on current projections, the country is currently hovering between the base and downside scenarios – with a large focus on the severity of the South African mid-year wave.
“PwC’s economic scenarios for 2021 are strongly influenced by different perspectives on the severity of the third wave of Covid-19 infections.
“The severity of the wave at mid-year and the associated severity of the associated closings will primarily determine the nature of the economic recovery.”
The group said it had also considered the negative effects of load shedding and the positive effects of fiscal and monetary stimulus on the economy.
“A scenario tool for economic impact assessment (EIA) was developed in order to assess the economic effects of the blocking levels. PwC used a Social Accounting Matrix (SAM) method to assess how lockdown restrictions affect different economic sectors.
“This scenario tool helps us understand the direct, indirect and induced effects of the specific shock on the local economy.”
The Baseline The GDP scenario for this year is based on expectations of an adjusted level 3 (3 lite) lockdown in July to combat the growing third wave of Covid-19 infections.
While restrictions are expected to be relaxed as the winter thaws in August and September, South Africa is expected to remain locked in stage 1 from September towards the end of the year.
This scenario envisages economic growth of 3.7% in 2021.
The prognosis also includes the assumption of another power drop based on the 2020 standard.
The above scenario provides for fewer days of load shedding for the rest of the year, a less strict closure in winter due to vaccination successes and a complete exit from the closure from September. This would mean that the economy would grow by 5.9% this year.
In return, the disadvantage scenario assumes a higher level of infection during the third wave and no exit from lockdown by 2022. Associated with this scenario is an economic growth rate of only 1.3%.
Return to normal by 2023
Based on its forecasts, PwC expects GDP to return to pre-pandemic levels by 2023.
The group said that this could happen sooner in the upside scenario, although at the same time a sluggish recovery in the downside scenario could result in the schedule being extended to 2027.
“Among the alternative alternatives, we currently see the downward scenario somewhat more likely than the upward narrative. It’s important to keep in mind that South Africa’s real GDP per capita was declining before Covid-19, down 8.3% over the past year.
“Based on our GDP and population growth expectations, real GDP per capita will not return to 2019 levels until 2028.”
Total employment fell to 2011 levels in the depths of the lockdown in Q2 2020 and “recovered” to 2014 levels by Q1 2021.
However, as of March 2021, the number of jobs in the country was only 91% of the period in late 2019.
“We assume that total employment should be at a similar level to 2015 by the end of this year. Our economic forecasts assume that South Africa will regain 444,710 jobs in 2021.
“We estimate that number could have been closer to 650,000 had it not been for the negative effects of the power drop,” PwC said.
PwC now expects total employment to return to 2019 levels by 2025. Until then, however, a large number of new emerging workers will be added to the workforce, it is said.
“PwC therefore assumes that the narrowly defined unemployment rate will fluctuate around the 32 percent mark in the long term. This should not be accepted as normal or acceptable. “
“Our upward scenario suggests that it is possible for the unemployment rate to return to pre-pandemic levels below 30% by 2024,” it said.
However, this requires a higher average economic growth rate of 3.5% per year in the period 2021-2024 compared to a base forecast mean of 2.4% per year.
Read: South Africa Must Introduce More Lockdown Restrictions – Including School Closures: Medical Experts