Category Investments

New World of Economics: Outlook

17 August 2020 Sanisha Packirisamy, Economist at Momentum Investments
Sanisha Packirisamy, Economist at Momentum Investments

Sanisha Packirisamy, Economist at Momentum Investments

Economist at Momentum Investments, Sanisha Packirisamy, looks at the longer term impact of the COVID-19 pandemic on poorer nations, the vulnerabilities of the institutional rules it has exposed and the fundamental changes to bureaucratic structures required to emerge with a fighting chance

While financial markets had their share of ups and downs in 2019, the year concluded with a revival in risk appetite on marked progress being made in trade negotiations, a resolution reached in a tense British political standoff and a steadfast resolve by global central banks to maintain an accommodative stance. The international community was however largely unprepared for the COVID-19 pandemic, which shook the steadier foundation on which the world entered the year 2020.

The COVID-19 pandemic has inflicted high human costs worldwide with the United Nations (UN) calling this the largest global health crisis in its 75-year history. Facing an impending global recession, policymakers rushed forward with large-scale stimulus measures which calmed volatility in financial markets. Nevertheless, the jury is still out on the effectiveness of these measures in lifting the world economy out of recession.

The hangover from the COVID-19 pandemic is likely to be particularly damaging to the more vulnerable communities and threatens to raise heightened levels of socio-economic inequality. Government’s approach to social distancing may prove less effective in a number of developing countries braving weaker healthcare systems, overcrowded informal settlements, inadequate border controls, a high reliance on public transportation systems and a lack of clean water. Containment measures to manage the projected outbreaks in these economies must also be balanced against the unintended effects of suppression strategies, in countries without a developed social safety net, such as higher levels of starvation and a rise in untreated diseases as lockdowns divert resources and attention to COVID-19. The ferocity of the COVID-19 pandemic threatens progress in poorer countries and could lead to fresh policy uncertainty in countries with weak political mandates or could entrench autocracy in countries with unguarded democratic institutions. While emergency policies were initially aimed at reducing the societal threat, questions have emerged over how these will be reversed without stoking socio-political instability given the negative political consequences of pulling the plug on increased welfare benefits.

The rise in interdependency among nations as a consequence of increased connectedness suggests more frequent systemic risks if left unmanaged. While it is not possible to avoid similar global threats in future, transboundary crises have the ability to spur multilateral co-operation and create an opportunity to undertake joint actions to dampen economic repercussions and ameliorate transnational challenges. With significant pressure building on government finances globally, public private partnerships, particularly in infrastructure, health and education, are critical in sustaining longer term growth and social development. The crisis also created an opportunity to study the strengths and vulnerabilities of institutional rules and proposes fundamental changes to bureaucratic structures in some governments and the need for political accountability in others to restore faith between leaders and their citizens.

South Africa (SA) entered the COVID-19 pandemic with a government debt ratio in excess of 60% and a paltry growth average of 0.8% for the past five years. At the outset of the crisis, government garnered a great deal of political goodwill by taking decisive action early on given the poor state of the public healthcare system and SA’s demographic health risks. However, a battered global economy and moribund local activity, even before COVID-19, imply that it will take years for the economy to reach growth levels attained at the end of 2019, particularly in a fiscally constrained environment. As the restriction on the movement of people and activities wears on, many small and medium enterprises, particularly those in the informal and services-related sectors will face financial difficulty and be forced to retrench workers or even shut down. An expected unparalleled economic contraction and the loss of jobs will bear negatively on tax revenue at a time when SA’s cost of borrowing has increased due to its perceived reduction in credit quality. This is likely to spur the debate for many previously resisted policy choices. There is still a road out of a potential debt trap for SA, but this involves reskilling workers in an age of automation, improving educational outcomes, eradicating corruption and improving the operational and financial standing of our parastatals. In this lower growth world, civil society and SA’s democratic institutions will be forced to play an active role in overseeing policy choices and holding government accountable.

Quick Polls


How can medical schemes demonstrate value in a post-pandemic economy?


Focused yet simple communication is crucial to demonstrate the cover's value
It is critical for medical schemes to focus on the customer experience and satisfaction
It is vital to get benefit communications and customer experience on point
fanews magazine
FAnews October 2020 Get the latest issue of FAnews

This month's headlines

Transformation trends - Tough commission procurement rule could dent insurers’ B-BBEE scorecards
Business interruption losses… the uninsurable
Are annuities tailor-made for today’s investors?
Reframing clients’ notions about retirement
In search of sustainable drought solutions
From risk to resilience - What the latest mindshift means for insurers
Subscribe now