Increased unemployment rate red flag for weak economic growth

The Citizen

13-05-2025

South Africa needs economic growth of at least 3% per year to create enough jobs for South African. GDP growth of 1% will not help.
The 1% increase in the unemployment rate to 32.9% for the first quarter of 2025 is a red flag for weak economic growth after the outlook for GDP growth in 2025 was already downgraded.
Professor Raymond Parsons, economist at the NWU Business School, says that with various institutions and economists already downgrading gross domestic product (GDP) growth to about 1.5% and below, it is not unexpected that this is now reflected in higher unemployment levels.
'The overall total unemployment level is now where it was a year ago, and youth unemployment in particular remains at an unacceptable magnitude. The latest increase in unemployment again confirms that economic growth in South Africa has been too low for too long.
'There is no magic wand to create jobs overnight, as the disappointing unemployment picture is the cumulative outcome of seasonal, cyclical and structural factors. The deteriorating employment outlook, nonetheless, again reinforces the fact that the third Budget next week must be a growth-driven one.'
Parsons says Budget 3.0 must create a policy environment that promotes economic expansion and boosts investor confidence, and must be dedicated to policies and projects that demonstrably support the commitment of the government of national unity (GNU) to at least 3% GDP job-rich growth in the medium term.
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Unemployed less likely to find a job as sustained growth remains elusive
Jee-A van der Linde, senior economist at Oxford Economics Africa, says the unemployment statistics from Statistics SA's latest Quarterly Labour Force Survey show that businesses and households employed fewer people at the start of 2025.
'Weak domestic demand means that South Africans are increasingly downcast about their prospects of landing a job. Sustained job growth remains elusive in South Africa, and unless government can fast-track more business-friendly policies, the situation is not expected to improve.
'The higher-than-expected unemployment rate at the start of 2025 does not fundamentally change our outlook for the labour market, as the baseline assumes that the unemployment rate remains at these elevated levels over the forecast period.'
However, he says Oxford Economics Africa will make revisions to account for the higher starting point for 2025. 'The quarterly decline in employment suggests that households came under pressure at the start of this year and indicates that businesses employed fewer people amid deteriorating demand conditions.
'In addition, the increase in unemployment does not yet reflect the impact of US tariffs. This would have weighed on business sentiment, resulting in companies scaling back employment and investment plans due to heightened uncertainty. It is therefore plausible that South Africa's unemployment rate could rise further in the second quarter.'
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Need for faster and labour-intensive growth to counter unemployment
Thanda Sithole, senior economist at FNB, says the absorption rate decreased by 0.8 percentage points to 40.3%, suggesting a moderate deterioration in the economy's ability to create jobs. 'At this rate, a significant proportion of the working-age population is still left out of the economy, emphasising the need for faster and labour-intensive growth.
'The weak employment data for the first quarter reflects subdued quarterly economic activity and suggests that the labour market remains structurally constrained amid weak economic growth and a persistently high youth unemployment rate.
'The near-term cyclical outlook for the labour market is clouded by elevated global uncertainty, including the impact of US trade tariffs. However, continued structural reforms should, over the medium term, support employment creation.'
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Uncertainty around GNU and US tariffs affect jobs
Busisiwe Nkonki, Johannes Khosa and Nicky Weimar, economists at the Nedbank Group Economic Unit, say the labour market outlook appears stable amid easing structural constraints, although cyclical factors are expected to become less supportive.
'Uncertainties related to the stability of the GNU and potential US tariffs are likely to hinder confidence and affect economic activity. The mining and manufacturing sectors are particularly vulnerable, facing challenges from subdued global growth and falling commodity prices, which will affect their export capabilities.
'The anticipated tariffs from the US present additional obstacles, creating a less favourable environment for hiring in these industries. Despite the challenges facing manufacturing and mining, the agricultural sector is projected to thrive due to favourable weather conditions.'
They say the anticipated deterioration in economic conditions is a concern, particularly as weaker global demand further affects key industries. 'We forecast GDP to grow by 1% in 2025 and 1.6% over the next three years. Considering the balance of drivers, we expect modest declines in the unemployment rate over the next two years.'
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Additional interest rate cuts can help to halt decline
Frank Blackmore, lead economist at KPMG South Africa, says if we can get additional interest rate reductions before year-end to help support economic growth, we may be able to halt the decline in jobs.
'Otherwise, we will require a much higher growth rate to absorb the economically unemployed in the South African economy, and that will obviously mean policy changes, attracting greater investment and allowing the private sector economy to create jobs by supporting the underlying infrastructure of the South African economy.'
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Unemployment casting shadow over country's recovery efforts
Casey Sprake, economist at Anchor Capital, says it is clear that South Africa continues to grapple with a relentless increase in unemployment, casting a shadow over the country's recovery efforts. 'While recent key reform measures point to a more positive trajectory, this progress has not yet trickled down to many South Africans in the form of job opportunities.
'Structural challenges, such as a skills gap, labour market rigidities and the lingering impact of the Covid-19 pandemic, have exacerbated unemployment rates, especially among the youth. As the economy expands, the persistent lack of jobs threatens to widen the inequality gap, undermining social stability and eroding the gains of recent economic advancements.'
A combination of structural deficiencies, such as a lack of skills, limited access to quality education and training, and inadequate job creation, has resulted in a large portion of the population being unable to find gainful employment, Sprake says.
'South Africa's unemployment problem remains particularly acute among the youth, where high levels of unemployment hinder their prospects and exacerbate social inequalities.'
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Youth unemployment points to structural issues in SA economy
According to Sprake, the increases in the unemployment rate for young people, as well as the unemployment rate according to the expanded definition, point to longer-term, structural issues within the local economy, as it is difficult to reincorporate and entice discouraged work seekers back into the labour force.
'In addition, in the domestic economy, material job creation has only occurred when GDP growth approaches 3% per year. Therefore, the economy is simply not growing at an adequate rate to sustainably boost long-term employment prospects for South Africans.
'At the end of the day, South Africa's unemployment problem is a complex and multifaceted issue that requires sustained and coordinated efforts from all sectors of society to create inclusive and sustainable employment opportunities for all South Africans.'