Real Estate Investor Magazine July/ Aug 2020 July 2020 | Page 25

sound fundamentals, as the South African economy has
been suffering from a demand deficiency for several years
and consumer inflation has been comfortably within the
Reserve Bank’s target range since April 2017.
The fairly dramatic recovery of the equity market is also
good news. When money market investment rates are high,
it operates as a de facto tax on venture capital – it simply
becomes too easy to earn a decent return without any risk.
The swift and pronounced easing of the rate of decline
of PMIs since April is a predictable response to the easing
of coronavirus containment measures, with most countries
allowing so-called non-essential businesses to start up
again. A paucity of demand will probably continue for at
least another month or two, but the surge in the global PMI
during May clearly suggests that a V-shaped recovery is on
the cards.
Lower interest rates are now acting as a disincentive for
passive investment, which should ultimately benefit the
ability of companies on the JSE to invest in the expansion of
productive capacity.
Drivers of recovery
Several potential drivers of economic recovery have
already come to the fore, especially in the economic policy
domain. Substantially lower lending rates in South Africa
will exert a powerful impact on demand in coming months.
Since the beginning of the year, the official bank rate (the
so-called repo rate) has been lowered by 275 basis points,
resulting in a current prime overdraft lending rate which is at
an historic low of 7.25%. This will lower the cost of working
capital and of credit and could well stimulate demand over
the next 12 months by more than R100-billion.
The decision to cut the official lending rate by an
unprecedented margin was mainly influenced by the
inevitability of a recession in 2020, but is also rooted in
On 22 June, the JSE all share index (Alsi) stood at 54,230,
marginally higher than during mid-August a year ago and
almost 40% higher than a mere three months ago, when
panic selling was the order of the day.
A large measure of calmness has returned to domestic
and global markets, with international trade also starting
to recover and consumers coming out of hiding. This ties
in with the IMF’s forecasts for a strong rebound of global
economic growth in 2021 – more evidence that a “V”-
shaped recovery may be around the corner!
SA Real Estate Investor Magazine JULY/AUGUST 2020 21