SA households' net wealth recovers 60% since April
CAPE TOWN – South African households’ net wealth recovered 60 percent since the end of April, as financial markets did an about turn from the massive Covid-19 pandemic related slump in March.
The recovery is due to investors believing that the global economic recession will be over soon; that a vaccine will be found before year end; that central banks will “bail” markets out; that governments will provide enough support to companies and households; and that economies will “open up” soon, Momentum economist Johann van Tonder said on Monday.
He warned, however, that should these beliefs not be realised, the prices of risk assets may retreat again – and this will negatively impact local household asset values.
Research from Momentum and Unisa released on Monday showed the net wealth of South African Households fell by R828.2 billion in the first three months of 2020.
The decline was mainly in the falling value of pension funds, which are invested in shares and bonds, and which fell by R427.6bn over the quarter, while other investments lost value of R363.9bn.
Van Tonder said the reason for these declines was due to the negative impact of the worldwide Covid-19 pandemic; the lockdowns that incapacitated the global and local economies and South Africa losing its investment grade credit rating.
Regarding the decisions to close economies, Van Tonder said “the future impact of these decisions will be devastating for economies and households – as company profits will decline, while millions of households are expected to lose their income due to extensive employment losses, negatively affecting their ability to live properly and save for retirement and other goals.”
Absa Bank’s economic research unit said yesterday it had revised its economic growth forecast for South Africa lower, to a gross domestic product (GDP) contraction of 9.7 percent in 2020, compared with its previous forecast of -6.4 percent for the year,
Various domestic and global developments had pointed to a deeper recession this year than thought, Absa said. In particular, the government’s risk-adjusted framework for easing the lockdown placed more limitations on economic activity and movement of people beyond end-April, than the bank had expected.
It will likely take several years for South Africa to regain its 2019 GDP level, and its sectoral composition will shift, the banks said.
The government’s R500bn response package (equivalent to 10 percent of GDP) was in the banks view more “relief’ more than “stimulus”, since R200bn of it was a guarantee programme, while R130bn was a reallocation from within the existing budgetary.
“We believe it will help ease the economic damage somewhat, but not prevent an unprecedented economic contraction in the near term,” the bank said.