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2008 versus 2020 – why this crisis is worse


Bloomberg explains in graphs the difference between SA’s economic crisis now versus 2008. South Africa emerged from the 2008 global financial crisis in strong position thanks to robust economic growth and a budget surplus when the downswing came. A rapid deterioration in public finances over the past decade means the opposite is likely after the coronavirus pandemic.

“We’re starting off this crisis in a far worse position than what we started off the global financial crisis,” said Johann Els, chief economist at Old Mutual Investment Group. “During that period, we also started off with much stronger economic growth; now we’re starting off from a position of less than 1% gross domestic product growth per year on average over the past six years.”

These charts show some of the metrics South African politicians and policy makers will consider when deciding virus-related fiscal and economic stimulus packages:

Africa’s most industrialized economy is set to contract on an annual basis for first time since 2009. That’s because a 21-day nationwide lockdown to curb the spread of Covid-19 will halt all activity except the provision of essential services. The restrictions, together with a slowdown in global output, could see South Africa’s economy contract by 0.5% this year, according to the median estimate of 20 economists in a Bloomberg survey.

South Africa recorded a budget surplus — the first since the end of white-minority rule — in the two years before the financial crisis. That gave the government room to spend to stimulate the economy. Now, it faces the biggest deficit in 28 years — and that was projected even before taking the virus into account. The National Treasury last month predicted the gap would probably widen to 6.8% of gross domestic product in the fiscal year through March 2021.

Government debt has doubled over the past decade and could surge to 78% of GDP in fiscal 2028 due to a series of bailouts for embattled state-owned companies including Eskom Holdings SOC Ltd. and South African Airways. The government has pledged to halt the deterioration in public finances and said it will adjust spending plans to fund the fight against the coronavirus.

Investment-grade credit ratings at the onset of the previous crisis supported capital inflows and helped keep the state’s borrowing costs relatively low. South Africa is now expected to end the week with a full house of junk ratings, with 19 of 23 economists surveyed by Bloomberg expecting a downgrade by Moody’s Investors Service on Friday.

South Africa's official unemployment rate is now 35% higher than in 2008

The virus-related restrictions are a significant threat to small businesses, which account for almost 40% of economic activity. A prolonged lockdown could compound the situation in a country where more than a third of the workforce is unemployed. The jobless rate has remained above 20% for at least two decades, largely due to insufficient economic growth. The economy must grow by more than 5% annually to meaningfully boost job creation, according to the government’s National Development Plan, an economic blueprint first presented in 2012.

South African business confidence is now lower than during the global financial crisis

Business confidence is even weaker now than at the height of the financial crisis and plunged to the lowest in more than two decades in the first quarter. It is set to weaken even further as the virus and lockdown add to the longest downward cycle since the end of World War II, which means investment from the private sector that should help boost growth and jobs, will remain weak