Unemployment figures still at a high

2014-05-06 12:11

The latest employment figures, released by StatsSA, provide further evidence that local economic performance is still well below potential.

StatsSA released its Labour Force Survey report yesterday, showing that unemployment rose to 25.2% from 24.1% in the preceding month.

Employment fell by 122 000, largely due to the 110 000 jobs lost in the informal sector, with private households and agricultural industries shedding 14 000 jobs and 15 000 jobs respectively.

“The unemployment rate is likely to remain high in the short term given weak domestic demand, rising input costs and labour disputes,” said Nedbank economist Johannes Khosa.

“By labour disputes, I am referring to the high wage demand in the platinum mining sector and manufacturing sector,” he added.

Khosa said the demands for high wages and the implementation of the minimum wage had deterred firms from creating jobs. In addition, he said increased joblessness was a result of “weak consumer confidence on the back of a fragile economic outlook as well as high debt levels, increasing interest rates and high inflation”.

Consumers are not buying goods and services because of increasing financial pressure and companies are finding it hard to sell their products.

As a result, local firms are reluctant to expand capacity or hire people because of increasing input costs, “resulting from high electricity prices and the weaker rand, making it expensive to buy dollar-denominated goods”, said Khosa.

The high costs increase overall company expenditure, cuts the company profit base and forces firms to cut labour costs.

Khosa said the local manufacturing sector had also experienced a direct hit from developments in the Eurozone. “Business confidence is weak. The Eurozone is our biggest trading partner and has been experiencing low economic activity, which resulted in a decreased demand for South African exports.”

The lack of international demand for South African goods means local firms aren’t exporting their products thereby reducing the incentive to create jobs.

Another reason firms are reluctant to create jobs is because of the expectation that the Reserve Bank will increase interest rates.

“We anticipate that the Reserve Bank will tighten policy gradually by a cumulative 50 basis points over the next few months as inflation rises above the target range and this will increase the cost of borrowing for firms,” said Khosa.

Firms will be less likely to pursue new projects, spend on machinery or on infrastructure projects that require a large labour force.

Chris Gilmour, Absa investment analyst, said: “We could see interest rates increasing by 100 basis points in the next coming months.”

He added that this would impact long-term company projects, which would cause them to reassess their spending and employment capacity.

But it is not all gloom. The Eurozone is showing signs of a slight recovery and firms that supply export markets should benefit from the global recovery.

“The weaker rand in the months ahead will make our exports desirable,” said Khosa.

But he warned that persistent labour and high input costs would hurt business confidence and that private firms would not aggressively pursue projects that would enable them to employ more people.

According to the government, the economy is set to expand by 2.7% this year compared with 1.9% in 2013. However, growth of 5.4% a year is needed to cut unemployment from the current 25.2% to 14% by 2020, should the country wish to reach its National Development Plan objectives.

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