20 Aug 2020

Economic update | Covid-19’s impact on the local and global business landscape

Business Class

Out of the Ordinary insight into today's world of business, from Investec Private Banking

The global outlook is one of unsynchronised economic recovery, says Investec Chief Economist (SA) Annabel Bishop. She predicts patchy outcomes between economies as some economies recover faster than others. She highlights what businesses will need to prepare for.

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Annabel Bishop
Annabel Bishop, Chief Economist for Investec in SA

There are some positives on the horizon, but we have to be aware that the uncertainties have not passed.

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Annabel Bishop, Chief Economist for Investec in SA, delivers an economic update within a global and South African context - with special focus on businesses.

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We cannot expect an immediate rebound, she says, but a slower and unsynchronised recovery between economies as we experience the lagged effect of the Covid-19 crisis.
 

And risks for the business sector in this new environment include weak expenditure, decreased consumer demand and more job losses.

 

Highlights of the podcast

  • [00:35 to 01:00] The impact of restrictions

    “Around the world, the impact of the Covid-19 restrictions has had a very negative effect on economies. In South Africa, we continue to see these statistics coming through.
     

    “If we look at the most recent data for June 2020, there’s over a 20% drop in the number of people who received salaries and wages – and this is a concern for businesses as well.”

  • [01:32 – 02:02] The rand

    “While there has been some optimism at certain times that the global economic recovery is underway, that then is met by sudden pessimism.
     

    “We’ve seen the rand weaken quite substantially. After reaching close to 16.34 rand to the US dollar – it’s now much weaker than 17 to the dollar again. And this patchiness in the financial markets is something we’re going be looking at for the rest of this year.”

  • [03:10 to 03:40] Patchy recovery

    “For businesses, the economic environment is expected to be particularly weak in the second quarter. We’re looking at a contraction of close to 50% for GDP.  When look at the year as a whole, we’re looking at a 10% contraction year on year.
     

    “The third quarter is going to be quite weak in its economic recovery; we’re only expecting growth of about 16% (quarter on quarter annualised). And leading into the rest of 2020, in the fourth quarter we’re only seeing growth of about 3% and next year experiencing growth of closer to 2%.”

  • [04:46 to 05:14] Interest rates

    “We have seen significant interest rate cuts and we’re not expecting to see interest rates hiked any time soon – and that will provide some support to businesses.
     

    “But in the longer term, as inflation starts to tick up – and we’ve seen a recovery to some degree in the oil price – we’re likely to see a further lift in petrol prices and that will feed through to higher inflation in South Africa for the remainder of this year and next year. And, of course, that will see interest rates rise, placing pressure on the environment.”

  • [08:00 to 08:21] No quick rebound

    “South Africa is not likely to see any quick or major rebound from its Covid-19 crisis in the near future.
     

    “Instead it is likely to be a slow, steady and uphill improvement – but there is room for further risks as well.”

  • [09:27 to 09:46] Opening travel

    “We still see some restrictions limiting the tourism sector. If we start to see the opening of travel much more substantially, that will in turn bolster business and economic activity.
     

    “Of course, we are at risk of a second wave of Coronavirus infections and that is something that needs to be borne in mind as it has happened in other economies around the world.”

  • [10:06 to 10:30] The future?

    “There are some positives on the horizon, but we have to be aware that the uncertainties have not passed.
     

    “The recovery is going to remain uneven and patchy both in South Africa and globally – and there’s likely to be volatility in financial markets as a consequence.”

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