Stagnation concerns as South Africa's unemployment tops 26%

There are growing concerns of stagnation in South Africa's economy as its unemployment rate rockets to record levels of over 26%, both surprising and alarming analysts. South Africa's largest labour federation called the figures depressing, adding that urgent action was needed to avert a "looming catastrophe." As we have previously noted, the nation is fighting to avoid the predicted "junk" rating from credit agencies this year with its economy hit by weak commodity prices, drought, labour unrest, electricity shortages and political upheaval, all of which has kept investors away. The IMF forecasts that South Africa’s economy will grow by just 0.6% this year, less than the rate of population growth.

In this photo taken Wednesday, March 16, 2016, a man begs from passing motorists at a busy intersection in Johannesburg.Denia Farrell/The Associated Press Share

South Africa's unemployment rate has soared to record levels, confirming the growing fears of stagnation in Africa's most industrialized economy.

Analysts had expected a rise in joblessness after South Africa struggled with falling commodity prices and the Chinese slowdown, but the jump was much greater than expected. The country's biggest labour federation said the numbers were "shocking and depressing" and called for urgent action to avert a "looming catastrophe."

Unemployment rose to 26.7 per cent in the first quarter of this year, a sharp escalation from 24.5 per cent in the previous quarter, as South Africa lost more than 350,000 jobs in factories, retail trade, construction and other sectors, according to a report by the official statistics agency on Monday.

The new jobless rate is the highest ever recorded in South Africa since the labour-force survey began in 2008, it said.

While jobs were disappearing, an additional 159,000 job-seekers came into the labour force in the past quarter. If discouraged workers are included, the jobless rate actually climbed to 36.3 per cent in the first quarter of this year, compared to 33.8 per cent in the previous quarter, the statistics agency said.

South Africa has been fighting to avoid a widely predicted "junk" rating from credit agencies this year. Its economy has been damaged by weak commodity prices, drought, labour unrest, electricity shortages and political scandals that have deterred investors.

In one widely publicized episode late last year, President Jacob Zuma fired his finance minister and then fired the new minister just four days later, leading to drastic losses in South Africa's stock market and currency. One cabinet minister sparked an uproar when he revealed that he was offered a cabinet promotion by a powerful business family with close ties to Mr. Zuma. The country's top court has found Mr. Zuma in breach of the constitution for his handling of state spending at his private village home, and another court ordered him to face corruption charges for an alleged bribery scheme.

The International Monetary Fund has forecast that South Africa's economy will grow by just 0.6 per cent this year, less than the rate of population growth. Africa's two biggest economies, mineral-rich South Africa and oil-rich Nigeria, have become a severe drag on the continent as commodities slump. Without the burden of those two countries, sub-Saharan Africa would be growing at 4.4 per cent this year, instead of its projected 3 per cent growth, the IMF said.

"Bottom line, we need to grow our economy faster," South Africa's Finance Minister Pravin Gordhan told a Johannesburg radio station after the jobless rate was announced.

Another senior minister, Jeff Radebe, said the trends for youth unemployment in particular were "very disturbing." But he expressed confidence that South Africa could avoid a ratings downgrade.

South Africa's biggest labour federation, COSATU, said the latest jobless numbers are "alarming and disheartening." It said the increase in unemployment was "massive" and demanded immediate action "to avert a looming catastrophe." It called for a summit with the government and big business to tackle the crisis.

David Maynier, finance critic for the opposition Democratic Alliance, said the loss of 355,000 jobs in the first quarter of this year is "staggering" and cannot be blamed solely on external factors. It has much to do with the government's failure to introduce key structural reforms, he said.

Late last week, South Africa narrowly avoided a ratings downgrade from Moody's, but the agency still gave the country a negative outlook. Two other agencies are reviewing South Africa's credit rating, and many economists expect a downgrade to "junk" status within the next few months.

After a mission to South Africa over the past three weeks, the IMF said the country is likely to have a "muted recovery" after 2017. But it added: "Risks to this outlook are tilted to the downside and include further shocks from China, heightened global financial volatility and sovereign debt-credit rating downgrades."

The IMF called for structural reforms in South Africa "to create jobs and reduce inequality."