A new world of economics – an outlook

By: Sanisha Packirisamy, Economist at Momentum Investments

Sanisha Packirisamy, Economist at Momentum Investments

While financial markets had their share of ups and downs in 2019, the year concluded with a revival in risk appetite on marked progress in trade negotiations, a resolution reached in a tense British political standoff, and a steadfast resolve by global central banks to maintain an accommodative stance. The international community was, however, mostly unprepared for the COVID-19 pandemic, which shook the steadier foundation on which the world entered 2020.

The COVID-19 pandemic has inflicted high human costs worldwide with the United Nations (UN) calling this the largest global health crisis in its 75-year history. Facing an impending global recession, policymakers rushed forward with large-scale stimulus measures which calmed volatility in financial markets. Nevertheless, the jury is still out on the effectiveness of these measures in lifting the world economy out of recession.

The hangover from the COVID-19 pandemic is likely to be particularly damaging to the more vulnerable communities and threatens to raise heightened levels of socio-economic inequality. Government’s approach to social distancing may prove less effective in many developing countries braving weaker healthcare systems, overcrowded informal settlements, inadequate border controls, a high reliance on public transportation systems and a lack of clean water.

Containment measures to manage the projected outbreaks in these economies must also be balanced against the unintended effects of suppression strategies in countries without a developed social safety net, such as higher levels of starvation and a rise in untreated diseases as lockdowns divert resources and attention to COVID-19. The ferocity of the COVID-19 pandemic threatens progress in poorer countries. It could lead to fresh policy uncertainty in countries with weak political mandates or could entrench autocracy in countries with unguarded democratic institutions.

While emergency policies were initially aimed at reducing the societal threat, questions have emerged over how these will be reversed without stoking socio-political instability, given the negative political consequences of pulling the plug on increased welfare benefits.

The rise in interdependency among nations as a consequence of increased connectedness suggests more frequent systemic risks if left unmanaged. While it is not possible to avoid similar global threats in future, transboundary crises can spur multilateral co-operation and create an opportunity to undertake joint actions to dampen economic repercussions and ameliorate transnational challenges. With significant pressure building on government finances globally, public-private partnerships, particularly in infrastructure, health and education, are critical in sustaining longer-term growth and social development.

The crisis also created an opportunity to study the strengths and vulnerabilities of institutional rules and proposes fundamental changes to bureaucratic structures in some governments and the need for political accountability in others to restore faith between leaders and their citizens.

South Africa (SA) entered the COVID-19 pandemic with a government debt ratio in above 60% and a paltry growth average of 0.8% for the past five years.

At the outset of the crisis, government garnered a great deal of political goodwill by taking decisive action early on given the poor state of the public healthcare system and SA’s demographic health risks. However, a battered global economy and moribund local activity, even before COVID-19, imply that it will take years for the economy to reach growth levels attained at the end of 2019, particularly in a fiscally constrained environment.

As the restriction on the movement of people and activities wears on, many small and medium enterprises, particularly those in the informal and services-related sectors, will face financial difficulty and be forced to retrench workers or even shut down. An expected unparalleled economic contraction and the loss of jobs will bear negatively on tax revenue at a time when SA’s cost of borrowing has increased due to its perceived reduction in credit quality. This is likely to spur the debate for many previously resisted policy choices.

There is still a road out of a potential debt trap for SA, but this involves reskilling workers in an age of automation, improving educational outcomes, eradicating corruption and improving the operational and financial standing of our parastatals. In this lower growth world, civil society and SA’s democratic institutions will be forced to play an active role in overseeing policy choices and holding government accountable.

It is in times like these that we remain deeply anchored in our outcome-based investing philosophy and process, where we are unwavering in our belief that a well-constructed diversified portfolio is the most efficient way to achieve the long-term investment outcomes for our clients. In uncertain and volatile market environments, we continue to vigilantly manage the risk in our portfolios and look for opportunities to harness the available opportunity set towards achieving our long-term investment goals.



Latest


21 Sep 2020
Women are lagging in retirement savings and are debilitated by stress

In a recent study of their client base, Momentum Corporate revealed that almost half (41%) of the employees on the…

Women are lagging in retirement savings and are debilitated by stress

In a recent study of their client base, Momentum Corporate revealed that almost half (41%) of the employees on the FundsAtWork Umbrella Funds are women. With an almost 50/50 gender split across the client base, a one-size-fits-all approach to advice on employee benefits simply won’t cut it. This is according…

15 Sep 2020
Despite COVID-19, SA investors expect higher future returns

Even as COVID-19 halted the longest economic expansion on record and plunged the world into deep recession, South African investors…

Despite COVID-19, SA investors expect higher future returns

Even as COVID-19 halted the longest economic expansion on record and plunged the world into deep recession, South African investors expect to make an average annual total return of 12.67% – almost 2% higher than the global average predicted returns of 10.9%. This was revealed in the recently released Schroders’…

15 Sep 2020
Are cryptocurrencies here to stay?

The recent news that cryptocurrency giant, Digital Currency Group, has acquired cryptocurrency exchange company, Luno, has once again highlighted the…

Are cryptocurrencies here to stay?

The recent news that cryptocurrency giant, Digital Currency Group, has acquired cryptocurrency exchange company, Luno, has once again highlighted the rise of cryptocurrencies as a possible alternative to the current global financial system. According to Old Mutual Investment Group Director of Investments, Hywel George, Bitcoin, as well as a number…

10 Sep 2020
How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key…

How too much choice is draining your brain

By: Paul Nixon, head of technical marketing and behavioural finance at Momentum Investments From the words of Francis Scott Key that dubbed America “The land of the free”, which stuck, to the unforgettable Mel Gibson monologue where an army of painted Scots were willing to trade their lives for the…


Top stories


10 Apr 2020
When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved…

When the going gets tough, farmers are on familiar territory

South African farmers are old hands at adapting to uncertain and daunting circumstances, and our local agricultural industry has proved to be most enterprising in acclimatising to challenges as they arise.

13 Apr 2020
Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19…

Investors should keep a reasonable investment allocation outside of SA

MoneyMarketing asked Roland Gräbe, the head of Tailored Fund Portfolios at Old Mutual Wealth, about offshore investments in the COVID-19 environment and what form a global market recovery will take.

13 Apr 2020
SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The…

SA’s Proposed Covid-19 Disaster Management Tax Relief

The National Treasury recently issued the draft Disaster Management Tax Relief Bill (Bill) for public comment by 15 April. The draft Bill, together with its explanatory memorandum, provides clarity with regards the tax relief measures President Cyril Ramaphosa announced on 23 March.

11 Apr 2020
Finding investment opportunities among the many COVID-19 risks

With many countries around the world in lockdown as they try to contain the spread of the COVID-19 virus, the…

Finding investment opportunities among the many COVID-19 risks

With many countries around the world in lockdown as they try to contain the spread of the COVID-19 virus, the global economy is facing an unprecedented situation of balancing health against financial livelihoods.


Visit the official COVID-19 government website to stay informed: sacoronavirus.co.za