Markets Daily: What other countries can teach us about opening the economy

Published on   September 21st, 2020   |   by   Isaah Mhlanga

Markets Daily: What other countries can teach us about opening the economy

Globally, traditional economic data is out of date before it is published. This is true of SA’s GDP statistics that showed a shocking annualised and seasonally adjusted -51% contraction in the second quarter, in line with other countries. So much that the urgency to open the economy fully became apparent. Combined with health data that showed a significant moderation in new covid-19 infections and a high recovery rate, President Ramaphosa announced that the country will be moving to level one in the risk adjusted covid-19 strategy. What can we learn from other countries that have eased restrictions faster than SA?

The ultimate preoccupation for policy makers in South Africa and possibly globally is job creation. The covid pandemic haemorrhaged jobs globally and countries are yet to recover lost jobs. Even after opening much of their economies, advanced economies and some major emerging markets have only recovered a fraction of jobs that were lost due to the pandemic.

Data from the Financial Times show that the US job vacancies declined by 40% from the pre-crisis level and have only recovered half of the vacancies that disappeared with covid-19. Vacancies remain 20% below pre crisis levels. France and Germany have barely recovered, still around 40% and 20% below pre-covid-19. Vacancies in the UK are 50% lower than pre-covid-19 levels, up from -60%. Brazil and India have recovered to 20% and 35% below pre-covid after reaching lows of 40% and 50% below levels that existing before the crisis.

While vacancies remain below levels that existed before the crisis, consumer spending have mostly recovered, remaining only less than 10% of the pre-covid-19 level. Consumer spending in Greece, Sweden and Netherlands have fully recovered while India, Brazil and Spain remain 44%, 21% and 17% below pre-pre-covid crisis levels.  

Retail footfall across the US, UK and Italy remain well below levels that existed before the pandemic. Understandably, consumer confidence remains low due to fear of the virus. However, squaring this with the household consumption that have recovered in some countries, implies that most of consumer spending is done through delivery. That is in line with the growth in tech stocks.    

One of the most impacted sectors of the economy is tourism. Across many countries including France, Greece, Italy, Portugal, Indonesia, Morocco, Philippines, Thailand and Vietnam, the recovery in tourism has been interrupted by a resurgence in covid-19 infections. After recovering 50% of the decline sustained due to covid-19, all the aforementioned countries relapsed, some including Indonesia, Morocco and Philippines back to almost total shutdown of the sector.  

In South Africa’s level one, tourism is one of the sectors that will benefit. However, like what we observe in other countries, the risk of a resurgence in covid-19 and therefore a reversal of the lockdown restrictions to more stringent levels remain a possibility. Monitoring covid-19 infections will become crucial going forward in order to anticipate potential change in regulations.     

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MolefeSmith (08:09:14 - September 22nd, 2020)

Thank you