The world economy is showing surprising resilience in the wake of the pandemic, boosted by fiscal stimulus and low interest rates. Several large economies have reported higher than expected GDP growth for the first quarter of this year. Year-on-year, China’s economy grew by a record 18.3% in the first quarter, while US output in the first three months of 2021 is projected to rise 6%. S&P 500 corporate earnings, meanwhile, are forecasted to grow 23% for the quarter.
Optimism about a global recovery as vaccination programmes accelerate is boosting economic forecasts for the year across the board. The IMF has lifted its global economic growth forecast to 6%, up from its 5.5% estimate in January. There are doubts about what happens when stimulus ends, however.
In South Africa, NKC African Economics has revised South Africa’s 2021 growth forecast upwards to 2.5%. The South African Chamber of Commerce & Industry also reported that it expects trade activity to grow over the next six months, thanks to a more business-friendly approach to lockdowns. Africa is, however, expected to lag global growth—the IMF projects 3.4% growth in GDP this year.
Stimulus, higher business and investor confidence, record household savings, and successful vaccine rollouts, are the ingredients in a cocktail of confidence driving equity markets higher. Investors put more money into global equity funds in the past five months (nearly $570 billion) than in the previous 12 years combined ($452 billion), according to the Bank of America. For April month-to-date, the MSCI World and JSE ALSI are up 4.68% in dollars and 2.26% in ZAR, as at yesterday.
“You don’t want to remove either crutch, the fiscal or the monetary, until the patient can actually walk fine, and to do that means support well into the recovery.”
– Christine Lagarde, president of the European Central Bank and former head of the IMF
- The Bank of England predicts that by the end of 2021, the UK economy will return to the levels of 2019. Consumer spending is expected to drive the revival of the economy. Packed hairdressers, pubs, gyms and stores as lockdown restrictions were lifted in England this week, bode well for a post-pandemic boom.
- China’s producer prices increased by 4.4% in March – the most since July 2018 – largely due to rising commodity costs.
- Microsoft has agreed to buy Nuance Communications for $19.7 billion, its largest acquisition since the company spent about $26 billion for professional network LinkedIn Corp. in 2016. Nuance, is a pioneer in speech recognition and artificial intelligence technology. Its software was the foundation for Siri before Apple company switched to an in-house version.
- On the digital currency front, Bitcoin soared to a new record high of $64,000 this week as Coinbase Global listed on the Nasdaq Global Select Market. Bitcoin, the original and biggest crypto coin, now has a market capitalisation of more than $1 trillion. Coinbase, the largest US crypto exchange, was briefly worth as much as $100 billion on its Nasdaq debut in volatile trading.
- In other digital currency news, the Biden administration is concerned that China’s plans for a digital yuan might, in the longer term, evolve into a strategy to topple the dollar as the world’s dominant reserve currency. The Treasury, State Department, Pentagon and National Security Council are scrutinising the potential implications, especially whether digital yuan could be used to work around US sanctions.
- A massive buildup of Russian troops on the border of Ukraine is casting political shadows, with the US considering sending battleships to the Black Sea. The US is also evaluating whether to impose sanctions on Russia in retaliation for alleged misconduct related to the SolarWinds hack and efforts to disrupt the US election.
- Former US President Trump continues to fight the Republican establishment and appears to have the advantage over moderate Republicans in both the polls and in the fundraising stakes. His Save America PAC has amassed a war chest of $85 million, mostly from small donors.
- After more than 170 days of hard lockdown and one of the world’s most aggressive vaccination programmes, Britain now has one of the lowest Covid infection rates in Europe with just 1,730 new cases last Sunday. Other European counties such as France, Sweden and Germany, by contrast, are battling a resurgence in virus infections.
- The latest South African Reserve Bank (SARB) data shows South Africans’ household wealth rose 4.8% to R14.05 trillion in 2020 compared with 2019. According to Kevin Lings of Stanlib: “It is encouraging to see that South African household wealth has easily outpaced inflation for the past 12 years, increasing by just over R6.9 trillion since 2008.
- “The increase in household wealth has occurred despite lacklustre economic growth and weak business and consumer confidence. Most of the gain in household wealth over the past twelve years has been generated by owning financial assets (which generated an average annual growth rate of 8.2%), rather than non-financial assets such as residential property (which increased by an average of 5.9% a year).”
- As of April 13, the rand is the only one of 24 risk currencies tracked by Bloomberg to increase in value against the dollar so far this year. The rand extended its rally yesterday, breaking below R14.20/$ for the first time in more than a year. Currency strength will cushion the country from inflation. Political risks, poor growth, lack of policy implementation and public sector debt are, as always, a threat to sustained rand strength.
- According to the SARB, South Africa’s economy contracted by 7% in 2020. It forecasts a growth rate of 3.8% in 2021, followed by 2.4% in 2022 and 2.5% in 2023. As such, the economy is only expected to return to pre-Covid levels in 2023. It warns that new waves of Covid-19 infections could derail these projections.
- The South African Revenue Service (Sars) has exceeded the revenue collection target set in February last year, and then revised several times because of the global Covid-19 pandemic. The revenue authority collected R1.25 trillion for the tax year that ended on March 31, while the expected total tax deficit of R312 billion was reduced to R175 billion.
- In more positive South African news, the Agricultural Business Chamber (Agbiz) says South Africa’s agriculture sector was expanding and “ready to contest more international markets”. Agbiz chief economist Wandile Sihlobo says the sector could enjoy a growth spurt, especially if the support by government policies, including the master plan on agriculture and agro-processing, come into play.
- South African banks’ year-end financial results last month showed significant increases in digitally active clients and more transactions done via online banking. Dominique Collett, a senior investment executive at Rand Merchant Investments and the head of incubator AlphaCode, says Covid-19 has “accelerated customer acceptance of digital financial services”. Read more here.
- Absa is closing its popular money market unit trust because many investors were under the mistaken impression that it guarantees the unit trust and its returns.
- With unions threatening a total shutdown of the public service if government does not respond favourably to their new demands for higher wages, South Africa faces the prospect of a massive public sector strike in the months to come.
- The ANC secretary-general, Ace Magashule, has launched a desperate fightback in the branches and on social media as time runs out for him to step aside or be suspended. In a letter this week, the secretary-general called on all party structures to submit to his office the names of those who face charges or serious allegations.
- Former President Zuma faces the prospect of prison time for contempt of court after his latest defiance of a directive from the Constitutional Court, which asked him to file a 15-page affidavit detailing what sanction he felt appropriate after he ignored the court’s ruling to appear before the state capture commission.
- President Cyril Ramaphosa is considering changing the ministries responsible for some of its biggest state-owned companies, including power utility Eskom, to better align them with their functions. Eskom may be transferred from the Department of Public Enterprises to the minerals and energy ministry, under Gwede Mantashe, Denel may move to the defense ministry and SAA could shift to transport.
- Government claims South Africa is facing delays to coronavirus vaccine supplies because of “unreasonable terms” demanded by manufacturers including Johnson & Johnson. This comes as J&J vaccine rollouts are paused in South Africa, the US and Europe due to a small occurrence of blood clotting incidents among people who have taken the vaccine.
Sources: Dynasty, Bloomberg, The New York Times, The Wall Street Journal, Daily Maverick, BizNews, Business Day, Moneyweb, Mail&Guardian, etc.