In a recent engagement with fellow economists on the role of monetary policy in boosting economic growth, a colleague advanced the familiar argument that the rate of return on capital (r) is greater than economic growth (g) and lamented that the SA Reserve Bank has kept policy rates well too high and made it too costly to fund investment. The argument then follows that the Bank must depress long-term interest rates to reduce the cost of funding for both the state and investors. But this reasoning misses the most basic economic principles....

Assumptions play a role in how societal challenges are dealt with. They are the pillars that hold proposed solutions together, both when the solutions successfully address society’s issues and when they fail. In the SA policy discourse many crucial assumptions are implicitly made, but sadly they have not resulted in the hoped for outcomes over the past two decades....

It took a mere 22 days from February 19 for the S&P 500 to decline by 30%, the fastest correction in history. The second fastest was the 1934 and 1931 market corrections, which took 23 and 24 days respectively. On the upside, the S&P has recorded a return of 37.7% from the bottom over a 50-day period, marking it as the fastest rebound in history. Meanwhile, economic data is still expected to show an economy that is severely damaged by the Covid-19 pandemic. This affirms a widely recognised fact — the stock market is not the economy....

There is an apparent dislocation in global markets, with risk appetite recovering and the stock market rising. Yet the underlying global economy is expected to contract by 3%, the worst since the Great Depression, according to IMF estimates....

South Africa’s post-COVID-19 economic recovery will depend on several factors, many of which are within the policy maker’s control and others that policymakers will have no control on. For an economy with roughly 60% accounted for by household consumption from an expenditure side, consumer confidence will be critical for the recovery in economic growth. However, this time around, consumer confidence will likely remain depressed and driven by factors that policymakers cannot directly control. This implies that economic growth will not recover quickly even if  the economy is opened up quickly.    ...

On Thursday the Reserve Bank monetary policy committee (MPC) will announce its interest-rate decision. The median expectation from a Bloomberg survey of 19 economists is for a 50 basis point (bp) cut in the repurchase rate from 4.25% to 3.75%....

Looking at investments during the Covid-19 pandemic is so difficult that some have opted to park funds in cash....

Stock markets worldwide have declined into bear market territory. The US S&P 500 is down 20% year-to-date, having reached a low of -31%. The MSCI emerging markets index is down 19% year-to-date, having reached a low 27%. The JSE all share has declined by similar magnitudes, down 22% from a low of 33% year-to-date....

Given what we know now, that there is a near complete lockdown of movement of people and company operations, South Africa’s GDP growth will likely contract by as much as 4% in 2020 due to the impact of COVID-19. This will result in about 1.7 million jobs lost, largely concentrated in manufacturing (940 000), transport (300 000), mining (230 000) and electricity, gas and water, and business services. GDP growth cannot be saved, but some jobs can, in some highly uncertain conditions. ...