Threat of an Extended Level 3 Lockdown on Economic Activity

  • Market Overview

Any extension of the lockdown will clearly come at a great cost to the economy, exacerbated by the third Covid-19 wave and the associated restrictions, which will all be a big drag on Q3 2021 GDP . Business confidence is reported to have plummeted, along with employment opportunities in the form of jobs that would have been created if not for the third wave of Covid-19, as well as the violent riots and insurrection led by supporters of Jacob Zuma.

The impact has been extremely uneven with certain industries – alcohol and the rest of the hospitality industry - at breaking point, while many essential services are almost untouched. The recent violence has hit the logistics industry hard, while home refurbishment businesses are reported to be exceptionally busy as people stuck at home improve their homes with money they can’t spend on wining and dining out. The government has responded with a package of measures to assist small businesses, and this is helpful.

A support package to increase consumers’ purchasing power and reducing the operating costs of affected businesses and industries, would also be effective interventions. However, there’s no avoiding the reality that extended Level 3 restrictions will have economic consequences that reach far beyond the immediate impact, for example:

• Higher unemployment and a reduction in wages due to lower economy-wide demand

• Increased uncertainty which has the effect of deferring investments from households and businesses

• Usually healthy companies may go bankrupt, reducing production capacity

Policy options are becoming increasingly limited with few alternatives to the rapid institution of reforms to drive faster economic growth, and in particular, bolster business confidence . The Cabinet reshuffle by President Ramaphosa was certainly a modest move in the right direction.

The priority of the government has to be the implementation with urgency of the economic reforms recommended by National Treasury and B4SA. These reforms are focused on the rapid expansion of the private sector and are critical to the revival of business confidence.

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