Real Estate Investor Magazine July/ Aug 2020 July 2020 | Page 24

INVESTOR INTELLIGENCE
Real estate recovery
Sound prospects for a “V”-shaped recovery
DR ROELOF BOTHA
The world finds itself at a crucial juncture in the combating of
the coronavirus pandemic, namely the end of strict lockdown
regulations. South Africa is no exception, with a partial reopening
of the economy gaining momentum by the week. Fortunately,
the sensible public debate on Covid-19 has shifted from a cynical
lamenting over the possible depth of the economic downturn to a
number of likely paths to economic recovery.
Four likely scenarios have been aired:
• A “V”-shaped recovery, which will witness a return
to positive economic growth by the end of the third
quarter of the year
• A “U”-shaped recovery, which predicts a more
subdued pace of recovery with a return to economic
growth early next year
• A “W”-shaped recovery, which is based on an initial
swift recovery, which then loses traction (mainly due
to fears over a resurgence of Covid-19 infections)
• An “L”-shaped recovery, which is the favourite of the
cynics and essentially sees the recession lasting for
several years
From the perspective of a sector-specific analysis of an
economy, neither of these views tells the full story. What
will most likely transpire in coming months is a threepronged
economic recovery. This will entail a strong and
swift rebound in some sectors (e.g. on-line shopping &
telecommunication); a more modest recovery in most
sectors (e.g. construction & real estate) and a fairly slow
recovery in sectors that will feel the brunt of consumer
reaction to the pandemic (e.g. air travel & hospitality).
PMIs point to quick rebound
In attempting to objectively gauge the nature of the
imminent recovery of economic activity, historical GDP
growth data and annualised GDP forecasts will not suffice.
This analysis requires a keen watch over authoritative
leading indicators that are published on a monthly basis,
like the Purchasing Managers’ Indices (PMIs) for key postindustrial
economies and emerging markets, most of which
are surveyed by IHS Markit.
The news from May’s PMI data is encouraging. Composite
PMIs for five of the six largest economies in the world
recovered reasonably well, after all of them posted
record declines in April (in China’s case, the recovery
already occurred in March). Composite PMIs represent a
comprehensive barometer of economic activity and include
the manufacturing and services sectors.
Although the latest reading of the JPMorgan Global PMI
(compiled by IHS Markit) remained well below the neutral
level of 50, it showed a record surge of just over 10 index
points from 26.2 in April to 36.3 in May.
20 JULY/AUGUST 2020 SA Real Estate Investor Magazine