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Don’t be too pessimistic about the future

Europe may have more to be optimistic about than SA right now, but as UBS’s Paul Donovan says, all people tend to underestimate their ability to adapt in times of crisis.
From how meetings take place to the ways in which we shop, the world has already adapted. Image: Waldo Swiegers, Bloomberg

Economic recovery can begin sooner than expected, is likely to happen more quickly once the worst of the pandemic passes, and will probably be stronger than most people expect.

This was the message brought to SA this week by London-based UBS chief economist Paul Donovan.

One of the main reasons for his rather optimistic view is that people are bound to adapt to the challenges brought about by Covid-19 quite quickly, as they have adapted to previous crises.

We have in fact already adapted. Donovan has been visiting SA for several years as a guest of Sasfin to do a series of presentations to its clients, but this presentation had to be streamed from his office in London due to travel restrictions. And it felt quite normal, after only a few months of Zoom, Teams, virtual meetings and webcasts.

In addition, says Donovan, the quality of available data about the impact of the pandemic is simply “terrible” – and most predictions based on bad data are bound to be flawed.

He cites inflation figures as an example. “How do we measure the price of a restaurant meal if the restaurant is closed?”

He points out that conducting surveys during a pandemic is difficult and that figures obtained this way – such as GDP, inflation and unemployment – must be treated with caution, since people and companies tend either to refuse surveys or give unreliable answers.

Then there’s the fact that the current situation is unique.

The big change

Never before in modern times have governments taken deliberate steps to shut down their economies and lower their GDP.

“We need to be careful [about using] traditional models for economic forecasts; it is not going to work,” he says.

“This is a very unusual economic cycle. It has been an abrupt process, not a bubble bursting or a gradual change in the economic cycle.

“We went from a normal economy to virtually a total lockdown and back to near normal [in the UK at any rate] within the space of three months. The reaction of consumers and companies is likely to be very different from how they have reacted in the past.”

Donovan predicts that we will see the strongest quarter-on-quarter growth ever in the third quarter of this year, as figures for the second quarter will reflect the weakest growth ever recorded.

He bases his prediction on his view of a strong recovery in spending by consumers and companies.


He maintains that overall income declined by no more than 15% in Europe and the US, but that spending declined by up to 35% during these months. “What happened to the money? People saved it. There was not much else they could do with it. People are emerging from the lockdown with a large pool of savings.”


Donovan predicts that people will spend these “forced savings” over the next few months, treating themselves after the lockdown despite their promises to themselves to keep on saving.

He says it happens time and time again. “I think it will be treated as a tax rebate. Figures from US tax rebates in 2001 and 2008 show that people spent the extra disposable income. People would say they are not going to spend the money, but save it. It was spent within six months.”

Donovan forecasts that the bulk will be spent on consumer durable goods, such as furniture and electronics.

“It is not enough for a new car, and increased spending on food and clothing is unlikely.”

Companies are also likely to increase spending to rebuild their inventories, which had been quite low going into the crisis due to the disruption in the supply chain when China went into lockdown.

Replenishing low inventory in warehouses by buying components or finished products will give the economy a short-term boost. Firms are likely to increase inventory to above normal levels as a buffer in anticipation of possible future disruptions in supply.

While expecting strong economic recovery in the second half of 2020, Donovan says it will not be enough to repair all the damage, and the level of GDP is likely to be significantly below that of 2019.

Long-term beneficial changes

On a positive note, Donovan identified long-term beneficial changes in the global economy due to the pandemic.

“I will argue that the pandemic accelerated structural changes that already existed in the global economy,” he says.

“The first is the focus on the environment and sustainable production, with companies looking at localised production and shorter, simpler supply chains. The pandemic has accelerated this.”

The second is that the big changes associated with the so-called 4th industrial revolution have been accelerated as well. These include increases in online retail sales, increased adoption of a flexible working environment with people working remotely, and governments taking a bigger role in the economy. “It has happened,” says Donovan.

“Overall, the longer-term situation is nothing new, we expected these changes to happen. They happened much faster. It is bad news, it is disruptive, and people lose jobs. Some jobs go down in status and some go up. It would have happened, it is happening quicker.

“Over the long term, these changes will make the economy more efficient and more productive and people will adjust to it.

“Pessimism in times of crisis are common, because people find it difficult to look beyond the immediate [of what] is happening around us. But we underestimate people’s ability to adjust,” says Donovan.

He mentions the extremely negative predictions following the US 911 attacks and the earthquake and tsunami that hit Japan in 2011 as examples, very few of which actually came true.



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Bull!!! This government put the country in JUNK status before the pandemic. Does “anyone” really think they have a game plan for recovery????????????? They remind me of on the job trainee’s!!!!

I have noted that there is a general correlation between pessimism in SA and the effects of the ANC corruption and mismanagement coming to light.

Is hoping for a sovereign debt crisis not to occur too much to ask?

The Reserve Bank has the money presses working overtime as we speak.

This will not end well….

And they say Bitcoin is useless

As always, the 1st World portion of the country will recover the economy while the rest sit and wait for jobs, and the for the normal freebies as well.

True: South Africans are adapting to the fact that they now live in a permanent failed state.

False: all the optimism in this article.

Even if we fully recover to pre-pandemic levels, we were already royally screwed. The problems with South Africa has not been brought about by the pandemic, the pandemic has only hastened the timeline a bit. My stance remains the same. If you do not want to emigrate, fine you don’t have to physically emigrate. BUT financial emigration is a must and by financial emigration I do not mean local funds that invest overseas. Financial emigration means literally moving your funds to overseas accounts with overseas banks / brokers.

Remember the ANC will never change their ways and even if they go below 50% in the next election, who do people think will be the governing coalition? I bet it will be ANC/EFF. In other words they will need money for looting. So as we all know pension funds are next on the table, and after that? The money market? balances in savings accounts? And when all else fails nationalize the reserve bank and start warming up the printing press?

In my humble opinion the economy, currency and infrastructure is heading one way. The only debatable issue is the timeline.

so they said in Zim many years ago

With the ANC determined to push ahead with EWC, NHI, more stringent BEE policies and every other economically destructive policy they can think of, it is very difficult to be optimistic without burying your head in the sand. Factor in that, as with what appears to be the case with the Covid relief /mitigation efforts, the NHI is likely to result in another feeding frenzy for the ANC with very little if any benefit for the population, there is even less reason for optimism. So start studying up on how to grow vegetables, harvest rainwater, prepare for more rolling blackouts and alternative sources of protein.

One would hope that the voters would see the results of the destructive policies but even that is doubtful considering that the ANC was voted in twice despite evidence of corruption.

Our only hope is for an IMF bailout with strict conditions that force the ANC onto a more sustainable path.

What happened to the money not spent? Answer – People saved it.

The small taxpayer base in SA would have tried to save BUT the others would blow whatever they earned without a thought for tomorrow.

Paul this is Africa…

If CR and his troop had any idea of what is coming they would have saved every job and business they could.

Even those in the cigarette and alcohol industries.

It will become clear in time to come that when there is nothing left to steal that’s not the time to say EISH! TOO LATE.

The time to say EISH! is now. But maybe to late???

I’m not optimistic about South Africa’s future. Unless we implements bold business and energy friendly reforms soon, our future will be very bleak. The financial and social cost of this lockdown will be very high, it will take the South African economy many years to make up for the economic losses. South Africa is well on the path to become a failed state, due to ANC gross mismanagement and corruption which has bankrupted South Africa. Now they want to steal our pensions and property to keep funding their gravy train. Once all the money is gone who will they blame? I believe offshore investments offer better diversification and far greater opportunities than most local investment.

This is possibly accurate for the G7 countries including China and maybe India.
As for SA I’m not inclined to be that optimistic, we have a tendency to miss out on the Global booms or participate less in them, yet get affected by the busts, in hard ways.

Hmmm?I see no comparitive analysis about changes in spending patterns and the fact that the demand in SA was already low. Our FM was in fact very careful not to hand out to much for dole.

Optimism in the present South African situation can be easily confused with Masochism.

In fact, there is NO SIGN of pessimism.

We are all REALISTIC in our expectations.

(SA has been moving down various global peer rankings, be it financial, safety, sovereign risk, BBP, Indiv Per Capita Income, education…you name it, circa 1994. It’s a sliding trend, no one can ignore. Am not pessimist…so long you know what’s ahead of you & one can plan/mitigate)

South Africa is finished. Prepare for the slow steady decline to pariah status.

End of comments.





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