Businesses suffer second wave jitters as economic recovery hangs in the balance - survey

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  • Businesses surveyed in December indicated that they were concerned second wave of Covid-19 infections would lead to more restrictions.
  • Levels of demand are still subdued, suggesting the economy has a long way to recover from the impact of the Covid-19 pandemic, says an economist.
  • While output levels were largely stable in December, there were issues in sourcing raw materials due to Covid-19 restrictions, the IHS Markit survey shows.

Businesses are hardly optimistic about the future, in light of the second wave of Covid-19 infections which they fear would lead to more restrictions, a survey shows.

IHS Markit on Wednesday released its Purchasing Managers' Index (PMI) – a measure of private sector business performance. The survey was conducted between 4 December and 21 December. It registered 50.2 in December, down from 50.3 in November, and is the lowest reading in three months. A figure greater than 50 indicates an improvement in the sector.

While output levels remained stable in December, businesses struggled to source raw materials due to the Covid-19 restrictions impacting global supply chains, the report indicated. Employment levels also fell, but modestly. Businesses are concerned about future prospects. "Expectations for future activity dipped to a four-month low," the report read.

Economist at IHS Markit, David Owen, noted the weak demand in the economy.

"Notably, business confidence was hit by firms' concerns that a sharp rise in Covid-19 cases could lead to a second wave of restrictions."

Given the rising cases, now more than 1 million, President Cyril Ramaphosa ahead of the new year reinstated adjusted lockdown Level 3 restrictions to control the movement of people during the festive period. This lockdown is expected to be reviewed on 15 January.

"While PMI data over the fourth quarter of 2020 points to an easing to the downturn, demand indicators suggest that the economy has far to go to recover from the pandemic.

"Moreover, should restrictions be reimposed, the country could face a second decline in activity over the first quarter of 2021," said Owen.

Business expectations for the next 12 months are still positive, but have dropped to their lowest levels since August.

"Hopes of an end to the pandemic drove business confidence, although there were worries that a second wave of Covid-19 and problems with input supply could derail the economic recovery," the report read.

Chief economist of the Bureau for Economic Research Hugo Pienaar said the move to adjusted lockdown Level 3 has slowed the momentum of recovery in the first quarter of 2021. This was as some income support measures are lapsing, people are more cautious about moving about due to the second wave which is deterring them from going out to restaurants, and there are extended lockdowns among some of SA's trading partners like the UK and countries in Europe.

Similarly economists at Momentum Investments noted the renewed lockdown restrictions would weigh on the economic recovery.

"In our view, countries that are larger, more flexible, less exposed to contact-intensive activity and that have a more diversified underlying contribution to economic activity will likely fare better in coming quarters," said Momentum Investments economist Sanisha Packirisamy. On the flipside, countries with smaller, concentrated economies, reliant on services such as tourism and hospitality and have an "entrenched small business culture" will require more support to aid their recovery, she explained.

Momentum Investments sees medical advances contributing significantly to the overall global economic recovery.

The World Bank similarly put forward that the rapid and widespread rollout of vaccines, coupled with investments could sustain long-term recovery. The bank expects the world economy to grow by 4%, and has pencilled in 3.3% growth for South Africa.

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