Following the volatile year for the global and domestic economies in 2020, financial services group Alexander Forbes expects 2021 to see an improvement, though uneven across economies.
The group has identified key economic trends and investment themes for 2021 and beyond.
Isaah Mhlanga, chief economist at Alexander Forbes, said: “South Africa’s economic recovery depends on several factors, some controllable and others uncontrollable, with the most important one being the logistics of Covid-19 vaccines.”
Which factors will drive the economic recovery this year and beyond?
- The extent of government’s lockdown restrictions
The second wave of Covid-19 infections appears to be moderating. However, the risk of a third wave of Covid-19 infections in winter will be a drag on growth Alexander Forbes said.
What will make all the difference however, is vaccination, which includes the ability to procure Covid-19 vaccines, effective distribution, and wide acceptance, “which we expect to see in the second half of 2022,” said Mhlanga.
- Economic costs of lockdown restrictions
The economist said he expects the economic costs of lockdown restrictions to continue to weigh on business and individuals in 2021.
- Pressure for government to extend the temporary employer/employee relief scheme and establish a basic income grant
“We expect better than expected revenue outcomes for fiscal year 2020/2021, but 2021/2022 will likely remain in line within the medium-term budget policy statement (MTBPS) forecasts. Fiscal risk remains very high, especially beyond 2022,” said Mhlanga.
- Monetary policy will remain accommodative
It will only start normalising in the second half of 2022, Alexander Forbes said.
“Global trade volumes show signs of a recovery but the recent resurgence in Covid-19 infections and lockdowns poses a downside risk to the global economic outlook in the medium term,” Mhlanga said.
“Global growth is expected to rebound by 5.5% in 2021 from a revised projected contraction of 3.4% in 2020 on expected vaccine-driven strengthening and additional fiscal policy support.”
Activity, he added, will remain well below pre-Covid, January 2020, levels. “Even with the anticipated recovery in 2021 and 2022, output gaps are not expected to close until after 2022 and inflation is expected to remain subdued.”
According to Mhlanga, South Africa’s long-term growth strategies for the economy after the Covid-19 pandemic must consider the following:
- Localising global manufacturing at consumption site through production onshoring;
- The technological leap, which is permanent with huge benefits to economies, but the digital divide will persist;
- The rise of the home office and the online retail market, resulting in a change in dynamics in the property market, with the residential space set to improve;
- Reduced regional and international travel for business for multinationals; and
- Africa Free Continental Trade Area will be transformational but has a lot of hurdles, with the need for an accompanying Africa-wide air transport protocol.
According to Lebo Thubisi, head of manager research at Alexander Forbes Investments, 2021 will be a key year for tackling climate change as world leaders will be congregating in Glasgow.
“We are also seeing a regulatory onslaught of global green finance taxonomies at the same time as National Treasury is working to develop a first national green finance taxonomy for South Africa.”
“The Biden presidency will impact global markets with a pro-climate stance, while the shift to renewable energy by the United States of America places pressure on global finance of coals assets,” said Thubisi.
The monetisation of data analytics is also likely to come firmly into play in 2021, he said.
“One can never be sure that all information has been considered. Artificial intelligence can dig deeper and find the ‘invisible relationships’ that exist between data sets,” said Thubisi.
Investment managers are fast embracing the cloud as this tool and advanced analytics enhance cost efficiencies. The cloud also brings in on-demand storage and processing capabilities, resulting in new developments such as advanced analytics to process virtually all kinds of structured and unstructured data to improve decision making, Alexander Forbes said.
Thubisi also agrees with Boston Consulting Group that “the alternative fund industry is going to grow significantly over the next five years”.
“People are going to move away from equities, and investors are going to expand their longevity outlook and invest with a longer time horizon in mind.”
As the road out of lockdown opens, South Africans are turning their strategic focus to how to compete in the much-changed marketplace emerging from the crisis.
“Global growth is set to improve but will remain constrained until population immunity is achieved, and South Africa’s growth will rebound from a low base but normalise around 2%, said Mhlanga.
“Certainty on land expropriation removes a threat to confidence and there is value in South African asset classes driven by a weakening US dollar cycle that favours emerging markets.”