Business Day Spotlight
PODCAST | Economic news of the week: No economic model can quantify the crisis
Comparisons between the US and SA are dangerous as the structures of the two economies are vastly different, says Nicola Weimar
In this edition of Business Day Spotlight, we look at how the extended national lockdown and recent interest-rate cuts by the SA Reserve Bank will affect the economy.
Our host Mudiwa Gavaza is joined by Nicola Weimar, chief economist at Nedbank, to discuss the economic developments of the week.
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The discussion begins with Weimar explaining that one the difficulties at this time is trying to quantify the impact of Covid-19 on the local economy. The crisis has meant that some of the national economic data that would have been released for each month and quarter has been delayed.
For now, Weimar and her team are keeping an eye on how the various forms of lockdown have affected other countries as a way to gauge the possible effect on SA.
At this point, no economic model can determine with certainty how long it will take for SA to recover from the crisis, she says.
Weimar says the Reserve Bank has, so far, done a good job in handling the crisis and responding to it with measures suchas cutting interest rates.
Earlier this week, the Reserve Bank cut interest rates by one percentage point for the second time in just less than a month, bringing the repo rate down to 4.25%.
The 100 basis point (bps) cut on Tuesday follows a 100bps cut on March 19. In January, the Bank cut interest rates by 25bps.
The move comes amid a wave of cuts by global central banks in an attempt to offset the economic damage from the Covid-19 pandemic.
Based on the Reserve Bank’s own projections and given the crisis, Weimer says another interest-rate cut is expected, but warns that going too far below inflation, which sits at about 4.6%, will likely not bode well the country.
In March, the US Federal Reserve cut interest rates to almost nothing, they are now at 0.25%, as a first response to the Covid-19 crisis. US authorities subsequently decided to inject more than $2-trillion to help stimulate the economy.
These moves have prompted debate that SA can, perhaps, print more money to help ease the pressure on the local economy. However, Weimar says it would not be prudent for Reserve Bank governor Lesetja Kganyago and his team to do so at this point. She warns that making comparisons between the US and SA is dangerous as the structures of the two economies are vastly different. Because of inflation, simply printing money in SA would result in devaluing the rand, which is already under pressure.
The discussion also explores considerations for investors and corporates at this time; the effect of the lockdown on different sectors and industries; how the coronavirus has affected other countries; inflation concerns; and ends off with an outlook for the rand.
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