There is no doubt that compared to this time last year, the world is in a better space. We watched in awe as the developed world unlocked their citizens, resulting in a global economic recovery, with cheap money simultaneously fuelling growth, economies and markets as they celebrated the defeat of COVID-19.
But risks remain. COVID is not over, and infections are rising globally. The Delta variant is more dangerous and herd immunity, once a goal, is now increasingly a fantasy. Markets are worried about growth, and central banks are worried about inflation. Despite this, Wall Street analysts have buy recommendations on 56% of the S&P 500 stocks, the most bullish they’ve been in 20 years. And that is despite the S&P 500 being up 100% from last year’s pandemic-induced lows.
Economically, the US is stronger than was expected a year ago. Because everybody had been locked up and unable to spend money in 2020, US households apparently saved $13.5 trillion, versus 2008, when they lost $8 trillion. This cash pile should boost and sustain their recovery going forward, with growth expected to reach 7% this year.
The issue they face is that nearly half of them are vaccine hesitant or deliberately reluctant, so as a result, infections are rising across the US.
Hesitancy is proving a bigger problem than anticipated across the world. Initially, most governments favoured incentivisation over threats. In New York you could get $100 for being jabbed; in Washington and Las Vegas they have been offering “joints for jabs”; in Moscow you could win a car and in Hong Kong an apartment worth R30 million. The Brits got vouchers for travel and food, Romanians a barbequed sausage sandwich and Indonesians a live chicken.
Increasingly though, authorities are becoming frustrated, so you can probably expect a firmer approach going forward, with some even considering mandatory vaccinations. The introduction of “vaccine passports” for all forms of social interaction and transport is having a positive impact on vaccinations in Europe. As they did last year, the Europeans opened up for summer, and have seen an uptick in cases, but with 50%+ vaccinated, the hospitals are coping fine. There too, however, hesitancy is increasingly an issue.
Economically, as predicted, the Europeans have stimulated their way to recovery and are forecast to grow at roughly 4.8% this year.
In the UK, with more than 75% of the population fully vaccinated, life looks pretty much back to normal, showing the rest of the world how a largely vaccinated country can unlock completely and live relatively normally once again. Thanks to vaccinations, the mortality of their third wave was 95% below that of January.
Back home, South Africans have had a torrid winter. Our slow vaccination rollout saw our much anticipated third wave arrive with winter. Unfortunately, with higher than expected levels of vaccine hesitancy, we’re only forecast to have three months of grace: September, October and November. Our fourth wave is predicted to start in December, putting our entire tourism and hospitality sector at risk for yet another summer season. Does that now mean no beaches or booze over Christmas, again?
The looting in KwaZulu Natal and pockets of Gauteng was devastating, but luckily did not spread to the rest of the country, so the impact on growth is expected to be limited to 0.4%. However, thanks to our much publicised commodity windfall, we forecast growth to come through at around 3.8% this year.
Fortunately, the rating agencies have indicated that it won’t affect our credit rating, but the real chance we had of a positive rerating has gone, certainly in the short term. It was a very regrettable “own goal” that will cost us much needed investment in the short term at least. Now it is up to the relevant authorities to permanently remove those responsible for driving it from our politics.
On that note, Zuma’s in jail, Ace is in court, SAA is finally partially privatised, and we can now produce our own electricity. In time, this will help our carbon footprint, alleviate load shedding and remove one of our biggest growth constraints.
In summary, other than the looting, SA has come through the past 18 months better than was expected. The looting was contained, and most importantly, it was the people who stopped it spreading across the entire country.
Thankfully, our third wave is declining, but we have to get vaccinations up otherwise we’re going to see a lot more fatalities, and more lockdowns every four to six months.
Concerns remain around death rates, global growth and inflation, but overall, the world, including SA, is in a better place than many would have expected. Barring a mutant variant that manages to outrun all the vaccines, this time next year we should be in even better shape. Last year there wasn’t even a vaccine. Now there is; people just need to take it.
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