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The Impact of the International Economic Crisis in South Africa

Listed author(s):
  • Margaret Chitiga
  • Ramos Mabugu
  • Hélène Maisonnave
  • Véronique Robichaud
  • Bernard Decaluwé

A dynamic computable general equilibrium model based on the PEP standard model developed by Decaluwé et al. (2009) is used to evaluate the impacts of the international crisis on the South African economy. However, we have changed some assumptions in order to better represent South African specificities. A major innovation in this regard is the modelling of unemployment and the influence of labour unions on the labour market. Two scenarios encompassing a severe and moderate recession are run. The effects of the crisis on the economy are really quite harsh, even in the moderate recession scenario, both in the short run and the long run. Indeed, the decrease of world prices combined with the drop of world demand lead to a decrease in production for many sectors with consequent laying off of workers. The impact on institutions is also worrying: agents see their income as well as their savings decreasing. The huge drop in firms’ savings has a dire impact on total investment while the huge negative impact on government accounts of protracted slow global growth imply tight public budgets for some time to come. Thus, some gains made by the government prior to the crisis may have been reversed by the economic crisis. It is apparent from the results that the impact of the crisis will drag into the long run with the situation still below what it would have been in the absence of a crisis until 2015.

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Paper provided by CIRPEE in its series Cahiers de recherche with number 0952.

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Date of creation: 2009
Handle: RePEc:lvl:lacicr:0952
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  1. Erik Thorbecke & Hong-Sang Jung, 2001. "The Impact of Public Education Expenditure on Human Capital, Growth, and Poverty in Tanzania and Zambia; A General Equilibrium Approach," IMF Working Papers 01/106, International Monetary Fund.
  2. Alberto Behar & Lawrence Edwards, 2004. "Estiimating Elasticities Of Demand And Supply For South African Manufactured Exports Using A Vector Error Correction Model," Development and Comp Systems 0409045, EconWPA.
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