It’s a sad tale of an economy devastated by the Covid-19 outbreak and the resulting lockdown, which was among the world’s longest. In the second quarter GDP shrunk about a fifth, more than any of its peers, and the country suffered its deepest recession on record.
The rate of decline was about twice that of the US, a country being hit by government incompetence, which is causing a new surge of infections that are likely to hit the economy further in the coming months.
On the plus side, government action to support the economy and moves to open up have caused a sharper recovery than economists predicted. There’s still concern about the opening of the economy and people flocking to beaches, pubs and restaurants — the government’s stimulus measures even included subsidising diners to help the hospitality industry — but a double-digit expansion in GDP is not something to be sniffed at.
Unfortunately, this is not SA, where there is no sign of a recovery. It’s about the UK, one of the most aggressive countries in injecting stimulus, and it has opened up with much more enthusiasm. So it doesn’t take much imagination to see how much more painful the Covid-19 impact will be here.
With a population that is so averse to government intrusion into daily lives that it rebelled successfully against the introduction of identity cards, in the UK extreme measures such as the almost five-month ban on tobacco products would never have been considered.
Bottle stores were even declared as essential businesses, though its beloved pubs were closed until the start of August. While it had travel restrictions like most other countries, it never closed itself to the same extent as SA.
It’s already welcoming tourists. The biggest controversy around that is the amount of time that travellers have to spend in quarantine, and who pays for the time they have to spend off work. Heading to the summer months, President Cyril Ramaphosa may have missed a trick here.
It’s a sign of the times that we’d look at the UK economy shrinking 20% in one quarter and think we’d happily take that
In SA, the economic picture is looking a lot more dire. If you are the type of person who sees the glass as half full rather than half empty, you might take some encouragement in Investec’s prediction of GDP growth of 15%-20% in the third quarter, reflecting the gradual easing of restrictions.
But as chief economist Annabel Bishop pointed out in her note on Friday, that’s mostly due to base effects. That is because data for the second quarter was even worse than her already gloomy forecasts. Now she forecasts the economy having contracted in the second quarter by as much as 60%. It’s a sign of the times that we’d look at the UK economy shrinking 20% in one quarter and think we’d happily take that.
In the light of this, it’s no big shock that Ramaphosa opened up the economy further, taking the country to level 2. That on its own won’t be enough to undo the damage. So the question is, what comes next?
The Reserve Bank has probably used up most of its tools, having cut interest rates by three percentage points in 2020 and introduced a series of other measures, including bond purchases. If anything, we might start debating the impact of the cuts on the currency.
Large-scale borrowing is not an option either, with talk already turning to the potential for large emerging-market economies facing fiscal crises in the years ahead.
The Financial Times counts SA among the countries that have provided about twice the emerging-market average of 5.4% of GDP in fiscal support measures to deal with the health and economic impact of the Covid-19 pandemic. Of course, SA’s actual stimulus is nowhere near the 10% level it quotes, with much of that tied up in a R200bn loan guarantee scheme that has paid out only about 6% of the total so far.
Still, the point is made that SA will be one of the countries facing tough decisions: roll back spending and face a populist backlash or seek to restructure some of its debts. There are people who think there are easier answers, such as the central bank simply printing R1-trillion. Why this should necessarily stop at R1-trillion is not explained. The virus will not go away soon and neither will the hit on the global economy.
Ramaphosa knows all of this, and that’s why it’s extra disappointing that he didn’t talk much about the economy until towards the end of his speech. And even there, the promise was of what to sceptics will sound like yet another talk shop.
“We are now working together on an urgent economic recovery programme that places the protection and creation of employment at its centre,” he said, referring to the government and its partners at Nedlac. “We will be making announcements on the outcome of this work in the next few weeks.”
In his speech to the University of Pretoria last week, Reserve Bank governor Lesetja Kganyago talked about delivering growth being a “team sport” as opposed to the obsession with monetary policy to the exclusion of all else.
But Ramaphosa seems to take this too literally, with a tendency for asking questions when he should already know the answers. The country doesn’t have the luxury of waiting a few more weeks for yet another plan. The president should be acting on the ones he already has, starting with the Treasury document that he has endorsed even before Covid-19 hit.
He can of course tweak things as time goes by and other partners give their inputs. The structural changes needed to sustain any recovery should no longer be subject to debate.
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