An outstanding feature of the global recession induced by the coronavirus pandemic was the swiftness with which composite purchasing managers’ indices (PMIs) returned to above the neutral level of 50 (the border between economic expansion and contraction). A second feature was the very short duration of the stock market crash, with a number of key global equity markets recently having climbed to record highs, including the Nasdaq Composite and the S&P 500 indices. On 31 December, the latter had increased by 68% from its low on 23 March.
Mass vaccination under way
Arguably the strongest universal growth driver that has come to the fore is the development of several different vaccines against Covid-19, with dozens more expected to become available during 2021. In the UK, preparations are under way to vaccinate as many as 2 million people a week at sites including soccer stadiums.
The Oxford-AstraZeneca vaccine is poised to become the preferred form of inoculation, due to its affordability (less than $4 per dose) and normal refrigeration requirements. The number of vaccines already ordered by governments and health organisations is almost equal to the world’s total population and mass inoculation will proceed at pace early in 2021. This may lead to the demise of most lockdown regulations by the second quarter of the year and a recovery of the worst-hit sectors, especially tourism and aviation.
Interest rates at record low
For South Africa, a key driver of higher economic growth in 2021 is the lowering of the cost of capital (and of credit) by 30%, as measured by the prime overdraft rate, which is at its lowest level in 50 years. Fortunately, inflationary pressures have all but disappeared in the wake of subdued demand and the recovery of the rand exchange rate, which should prevent the hawkish Monetary Policy Committee of the Reserve Bank from raising the repo rate during 2021.
The lower cost of capital will augur well for the government’s ambitious infrastructure drive, which is bound to lead to a revival of construction activity and the creation of jobs. The total of 62 major infrastructure projects that are in the process of being launched represent an impressive variety of applications, from residential construction to roads, dams and renewable energy.
South Africa also enjoys a fundamental balance of payments stability, due mainly to a combination of a record trade surplus and a structural increase in the ratio between foreign income receipts and foreign income payments.
Two of the reasons for the all-time record trade surplus, which in November reached a cumulative level of R238-billion for 2020, is the sterling performance of primary sector exports. Surplus food production and higher commodity prices have led to consistently higher exports during 2020, while imports were subdued as a result of low demand and the weakness of the rand between April and October.
Despite the inevitable hardship induced by the pandemic, not all sectors have contracted. A positive side-effect has been the fast-forward mode that was thrust on digital communication and online shopping, with benefits also flowing to their respective supply chains. A good example has been the contrast between the decline of revenue from Uber rides and the increase in revenue from Uber Eats.
These growth drivers, combined with the emergence of new digital business applications and an inevitable return to normality in travel and tourism, suggest that the New Year will be filled with opportunity, economic growth of around 5% and a significant increase in employment. BM/DM