South Africa Pay Growth Slows Amid Longest Downward Cycle Since 1945

Growth in South African labor costs continued to slow from a 27-year high in fourth quarter of 2020 as the economy extended its longest downward cycle since World War II.

Growth in economy-wide nominal unit labor costs fell to 3.9% from 4.6% in the third quarter, according to the South African Reserve Bank’s Quarterly Bulletin released Tuesday. That was down from the 12.6% high reached in the three months through June, which was likely driven by a data distortion caused by the coronavirus pandemic, the central bank said.

Still, the continued moderation indicates an absence of inflationary pressures emanating from wage increases, according to the central bank. The Covid-19 pandemic and tiered lockdowns aimed at curbing its spread saw the economy contract the most in a century in 2020, with many businesses under financial strain forced to cut workers’ pay.

Remuneration per private-sector worker contracted by 1.1% in the third quarter compared with a 5.9% decline in the prior three months, according to central bank data. Similarly, growth in public-sector pay slowed to 1.4% from 3.8% due to the government’s decision not to implement the annual public-sector wage increase in 2020 to curb the large state pay bill, the bank said.

The pandemic added to pressure on household finances in 2020, with consumption expenditure shrinking by 5.4%. That’s more that double the contraction induced by the global financial crisis in 2009, according to the bank. The ratio of household debt to disposable income increased to 77.1% last year from 72.9% in 2019. Data published earlier Tuesday showed private-sector credit grew at the slowest pace in more than a decade in February, suggesting that banks remain weary of lending to overburdened consumers.

These are some of the other key points from the Quarterly Bulletin:

  • The economy entered the 88th month of weakening cycle in March, its longest since 1945. The last major declining cycle in the economy lasted 51 months between 1989 and 1993, when the former all-White government renewed a state of emergency and the country prepared for its first democratic elections.
  • There were foreign direct investment inflows of 16 billion rand ($1.07 billion) in the three months through December, compared with a revised 12.2 billion rand of outflows in the previous quarter. Inflows of 51.1 billion rand were recorded during the 2020 calendar year.
  • Portfolio investment inflows of 24.1 billion rand were recorded, up from a 39.5 billion rand outflow in the third quarter quarter. Non-resident investors disposed of 159.3 billion rand in domestic assets in 2020, after making acquisitions of 87.5 billion rand the previous year.

©2021 Bloomberg L.P.

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