The debate has shifted from the depth of the recession to the shape of the recovery. Notwithstanding the relatively minor risk-off market behavior in recent days, risk assets have largely traded off a V-shape recovery in the economy. This has so far been confirmed by the substantial month-on-month increases in global activity data for May, even if these are off a severely eroded base in April. With fear of a second wave of infections, some are also talking about a W-shaped recovery. From an economic viewpoint, some countries are at risk of a U or an L. South Africa is a case in point – severe structural constraints have eroded our potential GDP growth, leaving us with a more prolonged and shallower rebound.
The COVID-19 pandemic has brought us even more letters to describe the macros, metrics and policy responses. While we would normally have been in a fiscal lull ahead of the MTBPS – Medium Term Budget Policy Statement – in October, we can this week look forward to a Supplementary Budget (SB) in which we will be facing DDD – double-digit deficits – and TDD – triple digit debt ratios – over the medium term. While the SARB is still some way from QE, NIRP, and ZIRP, the prudential authority has lightened the load on banks via lowering the LCR – liquidity coverage ratio – from 100% to 80%. Yet we are still woefully short of the Fed’s laundry list of programmes: PMCCF, SMCCF, MSNLF, MSELF, MLF, PPPLF, TALF, PDCF, MMLF, and CPFF (word count restrictions prevent us from elaborating…).
The SA government’s COVID-19 response has entailed the CGS – credit guarantee scheme and the UIF’s TERS – Temporary Employer/Employee Relief Scheme. The question for the Supplementary Budget is what is temporary and what is permanent. Finance Minister Mboweni must clearly distinguish between the COVID-19 shock and attendant response, and the policy options that will fundamentally alter the fiscal path towards sustainability.
- Level 2 B-BBEE contributor
- Matrix NCIS Fixed Income Retail Hedge Fund return for 2020 of 20% after all fees.
- Matrix NCIS Equity Fund ranks number 9 out of 117 funds in the General Equity space since inception.
- Amplify SCI Defensive Balanced Fund ranks number 3 out of 81 funds in the Multi Asset Low Equity space since inception.
- Matrix NCIS Fixed Income Retail Hedge Fund has returned Cash+10.5% since inception.
If you would like further information please feel free to contact us.