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Green shoots of an economic recovery are emerging, but keep saving money if you can

28 Sep 2020

This year has seen some of the toughest economic conditions ever experienced in South Africa, but there are signs of improvement.

Liberty economist, Tendani Mantshimuli, has urged people to keep saving what money they can, as this will help create a buffer against any further shocks.

She cautions however that there is a long way to go before we can expect conditions to offer a realistic recovery.

"Green shoots are starting to emerge from high frequency data, mainly as a result of the easing down of restrictions and allowing some return to normalcy in the economy. However, most of it is base effects," she says.

Looking forward to the rest of the year, the low base of growth will offer signs of improvement.

"There will be growth in third-quarter Gross Domestic Product (GDP), simply because the base is very low at -51%. The decline in first-quarter GDP can be attributed to restricted spending by the household sector, so the fact that spending will be higher as the restrictions are being lifted will support the firming of the shoots."

For the rest of the year, economic growth is expected to remain under pressure. Government has very few options at this point to lend additional relief.

"For 2020, we are expecting GDP to contract by between 8% and 10% compared to 2019, which places the economy in a difficult position. It will negatively impact government revenue and push the debt level higher."

"While the Reserve Bank may continue easing monetary policy, there are limited benefits in this boosting growth; and with the constraints on government finances, we cannot expect a boost to the economy from tax cuts to both business and consumers. Furthermore, the continued electricity problems add salt to a bleeding wound."

In her view, for the economy to recover, we need businesses to continue operating. The worrying question is how many will survive? 

There are limited options to stimulate growth outside of the implementation of the promised government reforms; these would in theory boost business and investor confidence.

"Household incomes are going to be negatively impacted; the prolonged restrictions in economic activity during the lockdown meant that a lot of companies, other than those providing essential services were shut down completely. The result is that some companies will never reopen, with job losses for their employees."

By way of advice she says putting money away as savings and investments cannot be understated.

"It's always important to invest, for those who can; this is a personal cushion. But for the economy, savings can fund fixed investment, a category which declined sharply during the second quarter. But foreign investment into the country is declining, and domestic savings should fill the gap," Mantshimuli says.

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