Despite steep losses in US stocks on Wednesday and Thursday, much of the narrative this week focused on how the world economy will move beyond the pandemic into recovery. With more than 225 million vaccine doses already administered across 100 countries (according to Bloomberg) – and an accelerated pace of inoculation – hopes are rising that the worst of the pandemic will soon be behind us. This along, with continued stimulus and government relief efforts, could set the stage for a strong economic recovery in the second half of the year.
In South Africa, the Finance Minister’s Budget Speech highlighted the many challenges the country will face in recovering from the pandemic, including its high wage bill, rising debt burden and failure to meet its revenue collection targets. On the upside, money has been found to fund a vaccination programme without significant tax hikes. There were no shocks (like a wealth tax which we argued against in our opinion piece dated 12 February), but there were also no bold reforms aimed at catalysing economic growth beyond Covid-19.
“The most essential factor to economic recovery today [1932] is the restoration of confidence.”
–Herbert Clark Hoover, American politician, businessman, and engineer, who served as the 31st president of the United States from 1929 to 1933
Global News
- Continued fiscal and monetary support, coupled with the rapid rollout of vaccines, are helping to boost investors’ confidence in the recovery of the world economy in the months to come. Pimco predicts that $1.9 trillion in stimulus could push US growth to 7.5% this year – a rate not seen since the 1950s. Some analysts are forecasting that oil could trade as high as $100 a barrel crude by the end of the year.
- With the UK’s vaccination programme accelerating and Prime Minister Boris Johnson setting out a cautious roadmap for unlocking the economy, speculation is growing over what will be included in next Wednesday’s budget speech. Some commentators are calling for targeted stimulus to boost the economy after a difficult start to the year.
- Positive vaccine news is fueling hopes for a pathway out of the Covid-19 crisis. Regulators and researchers around the world have indicated that Johnson & Johnson’s vaccine is safe as well as effective against newer variants of the virus (like the one discovered in South Africa). The World Health Organization’s global vaccine-sharing scheme COVAX delivered its first Covid-19 shots this week, an important first step towards inoculating the world’s poorest people.
- Changes in the political guard and shifting political dynamics are influencing the global trade and economic landscape. On the positive side – according to Bloomberg – President Joe Biden seems set to abandon Donald Trump’s America First rhetoric in favour of a spirit of closer international cooperation. Meanwhile, a Nigerian court’s decision to freeze Shell’s accounts over a dispute over an oil deal and Angola’s revocation of a law banning oil exploration in the Okavango Delta highlight shifting sands of regulation in Africa.
- Big tech continues to tussle with regulators and governments around the world. Facebook has backed down from its news blackout in Australia after the government agreed to amend world-first legislation forcing the tech giant and Google to pay local publishers for content.
- Following our news flash from last week about how Bitcoin has become more mainstream, Cathie Wood, the founder of Ark Investment Management, says Bitcoin has trillions in market cap potential. “It’s less than half of Apple’s valuation, and here we’re talking about the reserve currency of the cryptoasset world.” She reiterated that she sees Bitcoin as a hedge against monetary stimulus.
- ‘Meme stocks’ GameStop and AMC were in the news again last week. Investors lost an estimated $818-million in the wake of a Reddit-fuelled resurgence on GameStop Corp this week. The company was trading almost 60% higher after shares skyrocketed at the start of trading. The suits, no doubt, are a little concerned about what could be bigger than a temporary short squeeze.
Local News
- South African economists generally saw the 2021 Budget Speech as a solid attempt to balance the books without hiking taxes, but expressed doubts about Tito Mboweni’s ability to contain public sector wage increases and disappointment about the slow pace of economic reform. They also highlighted the importance of a rapid and well-managed vaccine rollout to rebuilding the economy. STANLIB’s Chief Economist, Kevin Lings, said it was positive that the Finance Minister did not seek to deliver a politically expedient budget, but noted that many risks remain.
- A key omission in the Budget was further clarity about how government will reform the energy market and put Eskom on a more sustainable path. Eskom did not get any new bailouts. In the 2019 budget, it was granted an annual inflation-adjusted R23-billion every year over the next 10 years, and a special appropriation of R56-billion over two years.
- According to Statistics SA, the official unemployment rate during the fourth quarter of 2020 rose by 1.7 percentage points from the previous quarter to a record high of 32.5%. The crisis – aggravated by the ongoing Covid-19 lockdown – poses a headache for President Cyril Ramaphosa’s government, which seems bereft of ideas on how to create jobs, grow the economy and manage a deteriorating fiscus.
- Based on the country’s high excess death number, Discovery estimates that more than half of South Africans have already been infected with Covid-19.
- Former president Jacob Zuma’s defiance of the state-capture commission and a Constitutional Court order has set a bad precedent. Auswell Mashaba, a businessman involved in a contract with the Passenger Rail Agency of SA in 2012, was meant to appear before Zondo on Wednesday, but his lawyer wrote to the commission saying his client does not recognise the summons, as it was not lawful or legally binding.
Sources: Dynasty, Reuters, Bloomberg Markets, Financial Post, The New York Times, Daily Maverick, Moneyweb, Business Insider, BizNews, etc.
