Compiled by: RA Downing, Econdow CC, In association with CMV Group & Perseus VC1
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More than just accountants
Smart Investment, Smart Returns
General
- The economy is still junk investment status
- Recession entered its fourth quarter and deepens
- Supplementary budget confirms an unsustainable fiscal situation
- Further structural economic logjams created by management of lockdown
- Serious price distortions by supply and demand management by government
- Institutional incapacity of the state and corruption practices rife during lockdown
- The state is not able to replace and or simulate free market rationality
- Business confidence tumbled to lowest level ever
- Investor confidence drops further – real fixed investment declines by 20%
- Domestic savings shortfall to finance investment
The Road Ahead
- GDP is 25% lower in the 2nd quarter of 2020 than a year ago, 15% y/y lower in the 3rd quarter, and 10% y/y in the 4th quarter of 2020
- GDP will decline in 2020 by 11.5% y/y if lockdown ends in August 2020
- GDP is predicted to grow in 2021 by 6% from the low 2020 base
- World economic performance is absent but could gain positive momentum from the middle of 2021
- World trade volumes are down by 13.5% in 2020 but are predicted to recover by 8% in 2021
- The anticipated best performing sectors in RSA in 2021 are agriculture, financial services, trade, and manufacturing – in that order
- The Rand will remain volatile and under pressure
- A further interest rate decline is needed as an emergency measure
- Micro decisions for business – ringfencing and maintain liquidity – financial survival critical in next nine months
Stalled business and economic environment
- Business environment deteriorates markedly in the 2nd quarter of 2020
- Structurally negative economic growth for the third consecutive quarter
- Declining rate of fixed capital formation
Demand stumbles
- Household consumption expenditure is under severe pressure – notably durable and semi durable goods
- Fixed investment in all asset types slack down and decline
Emergency monetary relief
- Lower inflation and interest rates do not counter real lockdown impact
- Rand exchange rate volatility despite favourable terms of trade
- Net financial outflows by non-residents equal R141 billion during the 1sthalf of 2020
Gloomy foreign trade
- Weak domestic economy causes less imports – smaller current account deficit
- Foreign trade (imports and exports) diminishes and moves sideways
- Global trade is down notably – particularly tourism
Hanging on to fiscal cliff
- The fiscal cliff – point of no return?
- Increasing tax burden, less capital expenditure, increasing current expenditure,and rising debt level
Social instability
- Foreign capital outflow in 1sthalf of 2020
- Foreign capital is an imperative for capital formation, economic growth, and employment
- Structural adjustment is needed to counter junk investment status
- Insufficient domestic saving
- Social instability in 2ndhalf of 2020
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
