POLITICS

Economy hanging in the balance - Solidarity

Movement says employment and wage prospects remain weak

Economy hanging in the balance: Employment and wage prospects remain weak 

26 March 2018

The South African economy is hanging in the balance, with ambiguous market and political trends at play that could sway economic fortunes considerably in the years ahead. This view comes from Solidarity trade union which released the South African Labour Market Index (LMI) for the fourth quarter of 2017 today.

The LMI, which forms part of the South African Labour Market Report compiled in collaboration with ETM Macro Advisors, is ʼn an indicator of job and wage security in the South African labour market. The LMI has risen to a neutral level just below 50, indicating that both positive and negative forces are impacting the South African labour market.

The Q4 2017 index relies on data compiled before the major political events seen in Q1 2018. These events included the appointment of President Cyril Ramaphosa, a cabinet reshuffle, and the controversial parliamentary motion on expropriation without compensation. 

According to Gerhard van Onselen, Senior Economics Researcher at the Solidarity Research Institute, the Q4 results should be interpreted with caution. “Over the last number of quarters, the index has been edging toward neutral levels and presently stands at 49, which is still below 50. On our index, a healthy and improving economy should reflect in LMI readings of 55 to 65.

The Q1 2018 index will take into account recent political developments and may give us a better read on how political trends are impacting job and wage security as well as business confidence.”

Van Onselen added that while business cycle conditions stood somewhat firmer in Q4 2017 compared to 2016, lifted mostly by an offshore driven recovery, improved commodity prices and a stronger rand, recent business cycle scores still indicate tough business conditions. 

The LMI increased to 49 in Q4 2017 from an unrevised 48 in Q3. Of the index’s three subcomponents, a sharp rise in the employee confidence index to 50 in Q4 from 45 in Q3 contributed most to the overall rise in the index. Labour affordability rose from 42 in Q3 to 43 in Q4, also contributing to the overall rise.  The Business Cycle Index component fell from 56 in Q3 to 53 in Q4 detracting from the overall index.

For employees, the low labour affordability score, which remains a drag on the Index, is especially noteworthy. “Low labour affordability scores show that substantially improved hiring and wage conditions are unlikely to materialise unless the positive offshore economic momentum is followed up with proper market-led and investor friendly reforms of government policy”, said Van Onselen. He added that Solidarity believes that many quarters of growth are needed to undo the economic damage and stagnation flowing from the Zuma years.

Solidarity notes with concern parliament’s acceptance of the motion for expropriation without compensation because it indicates that the Ramaphosa government is prepared to flirt with the idea of broad nationalisation policies and a drastic liquidation of private ownership rights in SA.

Considering the disastrous consequences of land nationalisation in many other countries, it is only reasonable to expect serious reservations about this from local and international investors”, said Van Onselen.

Issued by Gerhard van Onselen, Economics Researcher:  Solidarity Research Institute, 26 March 2018