Covid-19, the virus of uncertainty: the dominoes are falling one by one in the economy

Belinda Bantham -- Thu, 05/14/2020 - 08:27

Covid-19, the virus of uncertainty: the dominoes are falling one by one in the economy

The Covid-19 virus is causing unprecedented uncertainty on a global scale. An economist from the North-West University (NWU) says the impact of the pandemic is expected to be greater than that of the Spanish flu of a century ago.

According to Prof Danie Meyer, a development economist and director of the TRADE research focus area at the NWU, this uncertainty manifests itself on different levels.

Examples of questions that are asked include: When will the pandemic be over? Who will be affected and to what degree? How will the millions living with HIV/AIDS and tuberculosis be affected? Will a vaccine be developed and by when?

Prof Meyer says that the rate of infection in South Africa is increasing rapidly, and over the past seven days the country has had more than 3 220 new cases under Level 4 of the lockdown.

“The purpose of the original lockdown of three weeks, plus the additional two weeks, was only to prepare the health system for the expected large number of patients needing critical healthcare. The infections are expected to peak only in September 2020, with more than 50 000 people being infected and more than 1 000 deaths by then.”

He says the health facilities will be tested to the extreme. “The South African demographic and spatial distribution of people does not allow for an extended lockdown. Since Level 4 was promulgated, people have started to disobey the regulations. The lockdown has prevented a large percentage of citizens from earning an income and the consequences are dire.” Prof Meyer say the complete opening of all nine sectors of the economy with immediate effect is critical to save what is left of the struggling economy.

He says the question could be asked whether we have had any certainty since the virus was identified in South Africa in the first week of March 2020.

The impact of the virus affects all components of society and has a domino effect on the economy. According to Prof Meyer, in an uncertain local and global environment, we have a degree of certainty about the following:

  • After only a few months, the pandemic has already disrupted all sectors and industries. The rise of regionalism is already being experienced, with less globalisation.
  • The pandemic is expected to continue for a longer rather than a shorter period than was expected. Many researchers expect the pandemic will be under control only by the middle to the end of 2021. A vaccine is not expected to be available on a global scale before the second half of 2021.
  • To date, more than a million people have applied for assistance from the Unemployment Insurance Fund. The unemployment rate is expected to increase from the current 30% to more than 50% over the next few months.
  • The sectors that are most affected are the leisure and hospitality sector, in which up to 40% of people could lose their jobs. This is followed by the manufacturing, construction and retail sectors, in which up to 20% of people could lose their jobs.
  • More than 50% of people were already living in poverty before the lockdown started, and a recent survey found that more than 34% of people indicated that they had gone to bed hungry over the past few weeks. It is estimated that approximately 20 million people are currently in need of food support.
  • 2020 will be a year of negative economic growth, and Quarter 1 of 2020 is expected to achieve a growth rate of between -5 and -10%. Similar negative growth rates are predicted for the whole of 2020.
  • The extent of the impact is best seen in the automotive industry, in which exports of vehicles have declined from more than 32 000 vehicles per month to under 1 000 per month.
  • In a Capitec survey, 73% of small firms and companies indicated that they cannot survive a lockdown of more than three months, as they have limited reserves.
  • The impact of the virus on the government is equally immense. Tax collections are expected be down by more than 30% for the year. The Budget, which is already under pressure, will be stretched even more. The impact on government debt will also be devastating due to the R500 billion bailout that was promised.
  • The dire state of the economy is well listed in the actions of the South African Reserve Bank (SARB).
  • In the past two months the institution has cut the repo rate twice by one percentage point each time, and it is expected to cut interest rates again during May 2020.
  • The SARB has also intervened in the government bond market to support money supply to the economy. Before the lockdown, the SARB had bought R1 billion worth of bonds, but by the end of April the amount had increased to more than R20 billion.
  • The property market is facing an uphill battle due to two major factors: the house market is losing value in real terms and prices could fall by as much as 10%. People will start to default on monthly repayments.
  • This could lead to a “housing bubble” as the value of bonds rises above the value of properties. People will be unable to sell properties due to low demand. This situation will put both consumers and banks in a difficult position – similar to that in the 2008/2009 financial crisis.
  • The sports industry, like the tourism industry, will have to be bailed out. Sports unions and organisations still have expenses but no income. No normal sport is expected during 2020. If golf courses are not opened in the next few weeks, they run the risk of losing many courses by the end of the year.
  • Lastly, the education sector is currently trying to adapt to the new online environment. Universities and schools are hoping to save the academic year, and this will require a coordinated effort and a virus that is under control. A major problem is that only one in four households has a computer at home.

Prof Meyer says that, taking all this into account, it is clear that the coronavirus is fuelling uncertainty. He says drastic measures should be put in place urgently to aid the ailing economy.

For more information, contact Prof Danie Meyer at 082 850 5656 or daniel.meyer@nwu.ac.za.