Unemployment raises credit rating pressure

15 May 2016 - 02:00 By MARIAM ISA

There will be no respite in South Africa's unemployment crisis this year, as slowing economic growth means that further job losses are inevitable in the near term and will make it more difficult for the country to hang on to its investment-grade credit rating, analysts warn.News that South Africa's jobless rate shot up to 26.7% in the first quarter of this year from 24.5% in the previous quarter - its highest level since 2008 - was not a complete surprise as jobs are normally shed during this period, following a rise in seasonal temporary employment.But the magnitude of the increase -- which reflects the loss of 355,000 jobs and takes the number of unemployed South Africans to 5.7million - came as a shock."This is a national crisis - it requires extraordinary responses in terms of policy and a sense of urgency and we're not seeing that," said labour consultant Tony Healy.story_article_left1"People are giving up," said Mike Schussler, chief economist at economists.co.za. "We seem to have been caught a bit unawares as the economy is slowing down again and we will get further job losses. I think we are heading for 10million unemployed before 2020."That is a far cry from South Africa's National Development Plan, which envisages slashing the jobless rate to 14% by 2020, and just 6% by 2030. The main culprit is economic growth, which is set to slow to between 0.5% and 0.8% this year - also well out of line with the NDP target of 6%.FNB economist Sizwe Nxedlana said that based on a growth rate of just 0.5% - which he expects this year - the economy will generate only about 30,000 jobs, which won't make a dent in the half a million new job seekers pouring into the economy each year."We shouldn't panic just looking at one quarter's numbers - but we should expect much softer employment growth this year," he said. "The problem is that the implementation of the NDP has not been a priority, it has just been given a lot of lip service."A quarterly Labour Market index, compiled by trade union Solidarity and ETM Analytics and released on Thursday, showed that in the first quarter of this year job and wage security plunged to its lowest level since the recession of 2009.The index, which measures employee confidence, labour affordability and ETM's business cycle index, plummeted to 38.6 from a downwardly revised 44.6 in the final quarter of 2015.story_article_right2"It seems that the struggling labour market will be suffering from difficult economic conditions for a long time to come," said Gerhard van Onselen, economic researcher at the Solidarity Research Institute.A breakdown of the data released by Stats SA on Monday showed that the trade industry was hardest hit, putting 119,000 people out of work. Manufacturing was not far behind, shedding 100,000 jobs, while the construction industry lost 77,000 and finance shed 55,000.Employment only picked up in two of 10 sectors - community and social services, along with agriculture. At the same time the expanded rate of unemployment, which includes people who have not recently looked for work, jumped to 36.3%, or 8.9million South Africans.Looking at the long-term trend, the gap between the official and expanded unemployment rates has widened from 7.2 percentage points at the end of 2008 to 9.6 percentage points in the first quarter of this year. This means that the number of "discouraged" job seekers who have given up hope is rising steadily, creating further potential for social instability.Like most other emerging economies, South Africa has fallen prey to falling commodity prices and global demand for its exports, as China's pace of growth falters. But the country has also been affected by home-grown problems - power constraints, strikes, policy uncertainty and political events which have spooked investors and hit the rand.Business also says that the country's labour regulations - which the World Economic Forum rates as the among the most rigid in the world - make it harder to employ new staff.story_article_left3Nonetheless, the Stats SA data show that skilled South Africans can find work. Employment for professionals shot up by 108,000 in the first quarter of this year, while 23,000 new managerial jobs were created. But 210,000 jobs classified as "elementary", meaning low-skilled, were lost, along with 93,000 clerical and 91,000 craft- and trade-related positions.This is alarming as it shows the country's poor majority is being hit the hardest by the economy's slowdown. The informal sector of the economy - which normally helps compensate for lack of employment opportunities - shed 111,000 jobs."South Africa's high rate of unemployment is largely due to a combination of the structural legacies of apartheid and very poor educational outcomes, which leave many young people unprepared for the labour market," said John Ashbourne, the Africa economist for Capital Economics in London.The Stats SA figures showed that almost half of the "youth" labour force - between the ages of 15 and 35 - did not complete secondary education, while only about 14% had completed tertiary education. The official unemployment rate for young people excluding "discouraged" job seekers stands at 37.7%..

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