Tag: fiscal stimulus

The current pace and flux of geopolitics continue to disrupt markets, keeping investors worldwide on tenterhooks. The US/China relationship, in particular, is the most consequential bilateral relationship in the world. In a way, it is the axis around which other global events are turning.

The market lens for the rest of 2022 will be focused on the impact of political and policy miscalculations. Russia’s President Vladimir Putin has fully miscalculated the West’s response to his invasion of Ukraine. The speed, strength and unity of global sanctions is bringing about economic collapse in his country.

The beginning of 2021 was all about 'reflation' – a belief that massive fiscal stimulus, historically low interest rates and the reopening of economies on the back of COVID-19 vaccinations will drive an economic boom placing upward pressure on inflation.

Last month, US headline inflation recorded its biggest single jump in 13 years with a 5% gain from May 2020. In the wake of the global pandemic, rising vehicle prices, flight tickets, car insurance and hotels reflect a recovery in travel and higher oil prices.

2020 will be remembered as the year where the COVID-19 pandemic swept across the world taking the lives of many. This human tragedy was accompanied by an economic crisis as global economies shut down in an attempt to slow down the spread of the disease.

Major central banks have combined with structural trends (slowing developed market population growth, globalisation, and technological innovation) to almost eradicate developed market inflation volatility over the past 50 years or so.

Will investment fundamentals return in 2021 or will the great disconnect of 2020 continue? As we enter 2021, the market’s recent bout of festive cheer will have left many investors feeling upbeat. However, do not allow yourself to be carried away by the market’s high spirits. While there are many reasons to feel positive about the year ahead, it is equally important to note what markets seem to have forgotten – namely that the pandemic and its consequences are not yet behind us.

Much has been written about the uniqueness of 2020 and all the changes and uncertainties that have come with it. What started as a localised and isolated health scare, very soon spread to a global pandemic. Despite fatality numbers being relatively modest as pandemics go, the uncertainty about the disease, and its transmission and propagation, caused an extreme leadership response.

Moody’s cut both the local and foreign currency-denominated debt from Baa3 to Ba1 and retained the negative outlook. Their statement highlighted South Africa’s deteriorating fiscal situation amidst very weak economic growth, saying: 'The key driver behind the rating downgrade to BA1 is the continuing deterioration in fiscal strength and structurally very weak growth.'

With severely limited fiscal space, planned economic reforms need to be fast-tracked. South Africa is in a grip of panic over the impact of the coronavirus disease 2019 (COVID-19). The situation prompted an extraordinary address to the nation by President Cyril Ramaphosa on the evening of March 15. Apart from very real human health concerns, he commented that the outlook for the local economy – already on a weak footing heading into 2020 – is a big headache. Economic growth forecasts have been cut over the past few weeks as forecasters realise that the impact of the pandemic will be larger than previously thought. This begs the question: how will local authorities respond?