The Impact of the International Economic Crisis in South Africa

CIRPEE Working Paper 09-52

36 Pages Posted: 8 Jan 2010

See all articles by M. Chitiga

M. Chitiga

University of Pretoria - Department of Economics

Ramos Emmanuel Mabugu

Financial and Fiscal Commission

Hélène Maisonnave

Le Havre University; Université Laval; Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE); Partnership for Economic Policy (PEP)

Veronique Robichaud

Université Laval

Bernard Decaluwe

Université Laval - Département d'Économique

Date Written: January 7, 2010

Abstract

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.

Keywords: Dynamic Computable General Equilibrium, Economic crisis, South Africa

JEL Classification: D58, O55, F47

Suggested Citation

Chitiga, Margaret Mabugu and Mabugu, Ramos Emmanuel and Maisonnave, Hélène and Robichaud, Veronique and Decaluwe, Bernard, The Impact of the International Economic Crisis in South Africa (January 7, 2010). CIRPEE Working Paper 09-52. Available at SSRN: https://ssrn.com/abstract=1532775 or http://dx.doi.org/10.2139/ssrn.1532775

Margaret Mabugu Chitiga

University of Pretoria - Department of Economics ( email )

Lynnwood Road
Hillcrest
Pretoria 0002
South Africa

Ramos Emmanuel Mabugu

Financial and Fiscal Commission ( email )

South Africa

Hélène Maisonnave (Contact Author)

Le Havre University ( email )

25 rue Philippe Lebon
Le Havre, 76600
France

Université Laval ( email )

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi (CIRPÉE)

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

Partnership for Economic Policy (PEP)

P.O. Box 30772-00100
ICIPE - Duduville Campus, Kasarani
Nairobi
Kenya

Veronique Robichaud

Université Laval ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada

Bernard Decaluwe

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-5561 (Phone)
418-656-7798 (Fax)

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