Macro Economic Commentary – November 2020

Author: Ntsekhe Moiloa

Geschichte wird von den Siegern geschrieben.

But who are the winners who will get to write the next section of history? It seems that so many are losers, even though they thought they had won. Democrats in the United States could not fathom why their election performance underwhelmed expectations so much. Was it the strategy? Was it poor polling? Investors thought that a Blue Wave would beach with a flood of stimulus money, but no one knows anymore. COVID-19 infections have surged again in the United States as in Europe, but will that lead to more stimulus support? No one truly knows anymore.

Despite these uncertainties, Wall Street did not seem terribly fussed. President Trump appears to have outperformed expectations in his re-election effort, but still fell short. As November ends Mr Trump continues to fight a legal and political battle to stay in office, refusing to concede the race. Few take him seriously though and most expect Joe Biden to be confirmed as the next president when the Electoral College casts its votes in mid-December. New York, notably, has once again been indifferent towards its famous homeboy. In fact, the New York Times ran an article early in the month headlined “We Hereby Dump Trump”, an epic play of context and words after the president had declared himself the winner in a controversial speech from the White House early in the counting.

Try as he might, Mr Trump will not depart the White House on a palanquin. Come 20 January 2021, he might get a ticket and directions to the nearest bus stop.

So, when the movers arrive to pack at 1600 Pennsylvania Avenue, will Donald Trump’s boxes be marked for New York or for Florida? His wife voted in person in Palm Beach County if that is any kind of clue. Secret Service agents in Mr Trump’s detail have reportedly been polled as to whether they would be prepared to move to Palm Beach, if that serves as another clue. A good number of people the outgoing president’s age head for sunny Florida, but Mr Trump has always preferred to be seen in the mould of a New York brawler rather than a Floridian sunbird. His vow to fight the election outcome in the courts is completely in keeping with that self-affection. Nonetheless his New York hometown and state have not found him worthy of any meaningful adulation, broadly speaking, even as the city has been the centre of his business and social ambitions. And now since becoming a COVID-19 hotspot earlier in the year, New York is not quite as dynamic as it was when Mr Trump packed his bags for Washington, DC, nearly four years ago.

After first arriving in the Spring of 1904, the English humourist PG Wodehouse later said of New York that it was “like being in heaven, without going to all the bother and expense of dying.” It was a curious remark considering the population dynamics of the time, particularly the density of its core, Manhattan. In a study for the Marron Institute of Urban Management at New York University, authors Shlomo Angel and Patrick Landon-Hall discuss at length the changes in Manhattan’s population densities between 1800 and 2010. On page 30 of their study there is a chart that reveals that Manhattan’s population peaked around 1910 and has declined slightly since then. So certainly not the picture of idyll that we would associate with heaven.

More recently we have seen news reports of Manhattan residents leaving because of dissatisfaction with the quality of life. News outlets ranging from the New York Times, CNN, Reuters and the New York Post report an exodus to the suburbs and sometimes out of the metropolitan region altogether. Demand in the suburbs is reported to be ‘insane’ while the number of properties exchanging hands in Manhattan is about half of what it was a year ago. The reasons include worries about COVID-19 and policy choices by city leaders that include accommodating the homeless in hotels in tony neighbourhoods, leading to a rise in antisocial behaviour at the doorstep of the city’s wealthiest tax contributors.

As in so many other instances, the first to jump ship from a deteriorating situation are those with the means to do so. In Manhattan it has been the high-income residents who are important to the city’s budget. Nevertheless, the mayor has been upbeat, betting that they would return when anxiety about the coronavirus subsides. The early reports from families that have found space in the suburbs and less crowded schools, are that they are not in a hurry to come back to the city.

It is all too easy to assume that institutions and places that have been dominant in our lifetimes will continue to be so in subsequent generations. Yet there is no assurance of that.

The 15th century was Portuguese before the torch passed successively to Spanish ascendancy in the 16th century then to the Dutch in the 17th, then the French in the 18th. An industrialising Britain took over the 19th century before the United States decisively led the world from the Second World War onwards. None of these changes have impeded a formerly dominant power demanding a seat at the table when important world matters are discussed. Thus, while global economic might is pivoting toward an Asian — and specifically Chinese — century, the United States has unsurprisingly continued to forcefully argue for its seat at the table. At the head of the table.

The American argument has been made despite the evaporation of the political valence that supported the nation’s 20th century rise. The American Dream has become a shadow of itself. In a way, it should come as no surprise since America’s minorities have been long been describing the Dream rather as a Nightmare. And in truth, no globally dominant power has defied gravity forever.

In Africa, South Africa is slowly learning to speak about investment opportunities in the rest of Africa or north of the border. The era of talking about “going into Africa,” as though South Africa itself was physically exceptional to the rest of the continent, is fading away. Much faster growth is being notched in smaller and larger countries, from Rwanda to Ghana to Nigeria.

The road to recovery for South Africa might have become a little rockier. During the evening of 20 November, credit ratings agencies Fitch and Moody’s downgraded the country’s foreign currency sovereign debt further into non-investment grade territory. We are wary of reading too much into credit agency decisions since we find them too inconsistent in their ideal purpose of flagging default risk. But as an indicator of current sentiment they are more useful. Read as an indicator of sentiment, South Africa is less and less relevant as a destination for foreign capital flows. Ordinarily this would be a relatively minor matter given that less than a tenth of government debt is denominated in a foreign currency. However, this year government has started to lean more on foreign funding of its substantial forecast deficit, so as not to crowd out the domestic funding market. It therefore means that it is possible that in the future, National Treasury will find that it costs them more to borrow offshore than it has in the recent past.

Another element flagged by the credit rating downgrades is the perception that there lacks either a coherent plan for righting South Africa’s fiscal ship, or a believable implementation path. Or perhaps even both, at once. In the wake of the downgrades, at least a few well-known economic commentators have been invited onto radio stations where they have claimed that the government is not sincere about belt-tightening. As an example, one commentator questioned whether the Finance Minister’s vows to consolidate spending were politically realistic with less than a year to the next nationwide elections.

The gains pocketed by South Africa ought to increasingly be by design. At the end of the month we learned from South African Revenue Services customs data that the country had logged another trade surplus in October. Apart from one month early in the year, every monthly result in 2020 so far has registered a positive trade surplus. This is a rand-supportive outcome, but it pays to understand today why this has been so, also in the future when we look back at time series of trade data. This remarkable trade surplus streak has been highly informed by much lower import demand and augmented by good mineral export numbers. When the South African Reserve Bank publishes the third quarter current account data on 10 December, we expect to see a surplus greater than any we have seen since the 1980s. Yet, while seasonally adjusted exports are strong, it does appear that the strength is gently fading, and import demand – which grew 10.5 percent between September and October – is recovering. Credit extension data show healthy growth in long-term credit such as mortgages and instalment sales agreements, suggesting some optimism on the part of borrowers. Taken together, these trends suggest that the ball is in the government’s court to make sure that government actions are capable of taking over the momentum baton and driving the growth that private borrowers and investors are anticipating in the future.

PG Wodehouse’s contemporary, W. Somerset Maugham, would note in his 1938 book ‘The Summing Up’ that “the great person is too often all of a piece; it is the little person that is a bundle of contradictory elements. They are inexhaustible. You never come to the end of the surprises they have in store for you.” We will see if Donald Trump is “all of a piece”, and we will see if South Africa can gather her skirts and grow her economy — not her debt — far quicker than she has in the recent past.

Les jeux sont fait.