Vaccines procurement and distribution critical for SA’s return to economic activity

A doctor holding a vial of Pfizer’s COVID-19 vaccine.

BUSINESS

The ability to procure the Covid-19 vaccines, distribute them effectively and ensure they are wide accepted will have a huge effect on the world economies and especially South Africa.

At the Alexander Forbes Investments media roundtable this week Alexander Forbes chief economist Isaah Mhlanga highlighted the key economic trends and investment themes for this year.

Mhlanga said growth is expected to improve this year before moderating next year.

He said Alexander Forbes’ market and economic growth expectations differ slightly from general consensus.

“We expect the unemployment rate to be higher than consensus and this is based on lower growth than market consensus. Fiscal consolidation will begin this year and will remain necessary for much of this decade.

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“Monetary policy normalisation will likely begin in second half of next year, given low inflation and accommodative global financial conditions,” he said adding that Alexander Forbes expects rand weakness over the medium-term as fiscal risks increase.

The IMF expects global growth to rebound by 5.5% this year from a revised projected contraction of 3.4% last year and said the revised positive outlook is based on expected vaccine-driven strengthening and additional fiscal policy support.

In South Africa the pressure for government to extend the temporary employer and employee relief scheme increased, putting further pressure on the country’s fiscus.

The country’s economic growth has stagnated in recent years due to several persistent macroeconomic and structural challenges. The continued power outages, threats of further credit rating downgrades, climate change and stubbornly high unemployment, prospects of a significant rebound this year looked increasingly challenging.

The protracted vaccination procurement and distribution processes in South Africa will likely weigh on economic recovery.

Alexander Forbes said that even though the lockdown restrictions were necessary to reduce transmission of Covid-19, they came with high economic costs, including businesses bankruptcies, jobs and income losses.

To help with this government had introduced temporary employer/employee relief schemes and credit guarantee schemes.

Alexander Forbes said cushioning the economy has unavoidable fiscal costs which will need to be paid for in future by means of expenditure cuts, tax hikes or faster economic growth.

“We have made the basic assumption that vaccinations will only be meaningful from second half of this year and herd immunity reached sometime in 2023. The economy will not return to full capacity until herd immunity is achieved, meaning growth will be constrained via cautious consumption, fiscal consolidation and business disruptions,” said Mhlanga.

He added that there will be no sustainable recovery without stopping the virus.

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South Africa is currently in the second wave of the coronavirus infections and has the 15th highest Covid-19 cases globally. He said global activity will remain well below pre-Covid-19 levels and even with the anticipated recovery this year and next year, output gaps are not expected to close until after next year and inflation is expected to remain subdued, said Mhlanga.

“We expect better than expected revenue outcomes for fiscal year 2020/2021 but 2021/2022 will likely remain in line with the medium-term budget policy statement forecasts. Fiscal risk remains very high, especially beyond next year.

“South Africa’s growth will rebound from low base but normalise around 2% this year,” he said.

Mhlanga also shared some long-term growth strategies that South Africa should consider for the economy after the Covid-19 pandemic.

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