Asset manager Investec says a meaningful recovery from recession, internationally and locally, will depend on the rapidity of exit from lockdown restrictions, broad-based support measures and a substantial easing in red tape where it is prevalent.

An economic consensus forecast done by the company finds that most panellists believe South Africa’s recession will last for two quarters, while only a few panellists believe it will last beyond four quarters.

Investec further reports that China's economy is already starting to recover, with 1.1% gross domestic product (GDP) growth expected for the second quarter, following a GDP contraction of 6.8% in the first quarter.

China’s GDP growth rate is forecast to be 6.1% in the fourth quarter.

The asset manager says the US will likely struggle a while longer and only predicts positive growth for the US economy from the second quarter of 2021.

“Globally, the advent of the easing of lockdowns turned attention to the prospects for economic recovery, boosting some financial market sentiment.

“However, a slower than hoped for pace of easing of restrictions would disappoint markets, and a return to temporary risk-off is not unlikely, particularly if a second wave of infections/ lengthening of lockdowns occur,” Investec says.

The asset manager adds that economic expectations of the impact of Covid-19 on the global economy continue to adjust, with economists slightly less pessimistic about the global economic outlook than a week ago, according to the latest Focus Economics survey, although risks are still seen as heavily skewed to the downside.

In South Africa, Bloomberg economic consensus finds that South Africa’s GDP is likely to contract by 5% this year , however, Investec says a 6% year-on-year contraction in the economy is more likely, owing to government’s gradual pace of easing restrictions on the economy.

Around the world, many countries are opening up their economies based on the pace of new Covid-19 infections.

Restrictions on economies are increasingly lifted as the quantum of new Covid-19 infections ebbs. Some countries are also differentiating geographically within their borders based on the path of the virus through populations.

In China, which is ahead globally in the development of the path of the virus, citizens are now able to travel much more freely between cities without going into quarantine on return.

The easing of health measures is also aimed at bolstering the restart of China’s economy, which contracted by 6.8% year-on-year in the first quarter, but shows evidence of recovery in the second quarter.

China’s manufacturing Purchasing Manager’s Index entered positive territory in April, implying the sector expanded in the month.

The Chinese economy is widely expected to see activity lift this quarter, leading the economic recovery globally, and lifting demand for commodities. The rest of the global economy will lag this recovery, and so provide a drag on China’s growth potential.

Global trade volumes will be heavily muted in the second quarter, particularly in the first half, pulling down global GDP.

In Europe, Investec says that key economies such as Germany, France, Spain and Italy are expected to see sharp contractions in the second quarter, but rebound in the third quarter. Extensions/reinstatements of lockdown are key risks.

In the US, the economy contracted by 4.8% year-on-year in the first quarter, with jobless claims at 30-million by April 25.

“The US economy is also expected to rebound from the third quarter, with restrictions on economic activity currently varying between states. Its fiscal stimulus package is just under $3-trillion, with zero bound rates, deep quantitative easing and substantial lending facilities.

TRANSACTIONAL ANALYSIS

Already, a report from BankServ, which is the largest automated payments clearing house in South Africa, analysing actual transactions, shows that in the 38 days to the May 3 since lockdown began on March 26, daily transactions were down sharply, by 49% after peaking in March, as consumer spending plummets.

Specifically, consumer transactions were down by half of the usual transaction volumes tracked by BankservAfrica’s point-of-sale and ATM transactions over the corresponding period in 2019.

April’s month-end was 48% below the norm, and the drop in the month-end transaction volumes between March and April was 58%.  

Investec quotes BankServ as highlighting that this reflects a slower start to the April pay month so far. The actual same period in 2019 had a 20% increase in transactions.

“This is a far cry from the average daily spend by consumers that is usually higher at the start of the pay month,” says BankServ.

BankServ’s indications so far suggest May will also be below the norm. However, since May 1, when Level 4 restrictions were applied, the average number of transactions processed by BankservAfrica increased slightly to 58% of the usual transaction spend, proving “a glimmer of hope for a gradual increase in spending over time”.

As lockdown restrictions are eased further, with businesses hoping for Level 3 restrictions to come sooner rather than later, the circulation of money in the economy is likely to see some further impetus, but consumer confidence will have been severely repressed in the second quarter, with lockdown also largely eliminating expenditure on big ticket items and many luxuries.