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Damaging policies exacerbate impact of economic shocks – Solidarity

Wednesday, February 10th, 2016

The South African government’s damaging policy exacerbates the impact of global economic shocks on the local economy. While lower commodity prices and other external obstacles hamper South Africa’s current growth prospects, these factors do not carry most of the blame for the slump in die local economy.

According to Gerhard van Onselen, economic researcher at the Solidarity Research Institute (SRI), South Africa’s performance is considerably worse than many of its peers facing similar external challenges. “As far as dollar-adjusted GDP per capita growth is concerned, South Africa is currently on par with countries experiencing war, political unrest or major financial instability,” Van Onselen warned.

This is one of the findings of trade union Solidarity and ETM Analytics in the latest edition of their Labour Market Report, a quarterly commentary on labour market events.

Van Onselen added that a structural weakening of the domestic labour market has prevailed since 2007. The Solidarity-ETM Labour Market Index, a measure of job and wage security in the South African Labour Market, has been above 50 for only 3 of the 32 quarters since December 2007, which indicates lasting damage to the local economy.

Van Onselen believes that interfering policies as well as policy uncertainty in South Africa should be dispensed with as soon as possible to mitigate the impact of external economic shocks. By announcing such policy reforms in his upcoming State of the Nation address, the president could put the economy back on track.

“However, several controversial policies and laws are currently being passed, among them the Expropriation Bill recently approved by the relevant Parliamentary Portfolio Committee. In addition, the proposed national minimum wage is another interfering policy that will damage the economy if implemented,” Van Onselen said.

Van Onselen also warns that growing government debt is steadily eroding economic growth in South Africa. In the medium-term budget presented in October 2015, South Africa’s gross government debt for the 2015 financial year was shown to be almost 47% of the GDP.

“Fast growing debt service costs are already putting huge pressure on the government’s budget. In addition, higher state expenditure is detrimental to the economy. Even if government debt is stabilised through higher inflation, the economy in general and consumers in particular will be adversely affected by the effects of inflation,” Van Onselen said.

Other topics under scrutiny in the latest Labour Market Report are:

  1. Failed economic policy of the SA government
  2. Higher minimum wages are similar to monetary policy 
  3. GDP ratios: Obfuscation through inflation
  4. Macro-economy: Weak rand increases recession risk

Click here to download the full Labour Market Report.

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