South Africa’s move to level 3 lockdown won’t be like ‘flicking a switch’

President Cyril Ramaphosa’s announcement that most of the economy will reopen from 1 June should be welcomed; however, it must be stressed that overall levels of activity will remain notably below what we saw before the pandemic, says the Bureau of Economic Research (BER).

The BER said that there are a number of hurdles that the economy will still have to deal with and that the move to level 3 ‘is not like a flick of a switch’.

Some of the key issues highlighted by the group include:

• Companies will be asked to phase in the reopening and to put in place all the necessary health precautions;

• Weak demand conditions may (at least initially) prevent some companies from fully ramping up output to 100% capacity;

• Some companies may still not be able to operate at a level that makes commercial sense;

• Some industries will remain closed under Level 3. While the ban on alcohol sales for home consumption will be lifted (with strict conditions on trading days and hours), the sale of tobacco products will remain prohibited. More importantly, from a GDP and employment perspective, some key parts of the services sector will remain closed;

• No timeline was provided for how long Level 3 could last. The speech said that “in time”, areas with low infections could move to Levels 2 or 1. As has often been stressed, it could be some time before life returns back to ‘normal’.

“Against this backdrop, the move to level 3 does not alter our forecast for a 9.5% real GDP decline in 2020,” the BER said.

“The latest set of high-frequency data confirms our view that the technical recession extended into Q1 2020, with overall GDP set to decline for a third straight quarter.”

This again emphasises that the South African economy was under severe pressure even before the nationwide lockdown came into effect at the end of March, the group said.