BUSINESS MAVERICK ANALYSIS: Counting the economic cost of the 2Q Covid-19 lockdown

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The second-quarter growth statistics released in the US and Euro-zone confirm the record-breaking knock the global economy has experienced as a result of the pandemic. The extent of South Africa’s economic decline during the lockdown has yet to be revealed. Mixed messages from available economic indicators make it more difficult to see whether it is likely to surprise on the up or downside. What is not in doubt is the urgent structural reforms that are needed to reverse decades of deep domestic economic damage.

The much-awaited quantification of the Covid-19 lockdown’s cost to economies began to trickle through last week, with the US and Europe experiencing their biggest second-quarter declines on record.

For the moment, however, other indicators that give us a sense of how the domestic economy is doing are sending conflicting messages. While the July Absa Purchasing Managers’ Index declined slightly compared to the previous month, it remained in the expansionary territory above 50 and there was another month-on-month improvement in conditions in the manufacturing sector.

He points out how much the Great Recession of 2008/09 pales in comparison with the record-breaking 32.9% and 40% declines in GDP experienced by the US and the Eurozone in the second quarter .The 12.1% quarter on quarter decline in Eurozone growth, which translates into the 40% annualised rate, is the largest on record. ING says: “While GDP has already started to climb thanks to reopenings, a V-shaped recovery is wishful thinking.

Fitch warns that repeated waves of new infections and renewed nationwide lockdowns could result in “a very sluggish recovery”. Medical breakthroughs, however, could result in a rapid normalisation of economic activity though, the rating agency adds.

 

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