Alexander Forbes economic update following April economic activity

Below is an update from Alexander Forbes following April economic activity. Information was supplied by Alexander Forbes.

US supports the easing of vaccine intellectual property amid surging cases in India and Brazil

On Wednesday 5 May 2021, US President Joe Biden’s administration announced its support for a global waiver on patent protections for Covid-19 vaccines, offering hope to low-income nations that have struggled to access the vaccine jabs. India and South Africa have been at the forefront of the fight to allow more pharmaceuticals to manufacture the vaccines within the World Trade Organization (WTO). While the World Health Organization (WHO) and countries such as New Zealand and Australia welcomed the monumental decision by the US, pharmaceutical manufacturers and associations were disappointed.

The global coronavirus seven-day average surpassed the Covid-19 second wave high as cases continue to surge in India and some parts of Europe. The US has 33.3 million cases, accounting for 21% of global cases, and the death toll is 593 148. On Wednesday 05 May 2021, India reported its highest daily tally of 412 262 new cases and a record 3 980 deaths, thereby accounting for 46% of new coronavirus cases globally in the past week. India has 21.07 million cases and 230 168 deaths. India is battling a record-breaking surge of the virus that has overwhelmed hospitals, morgues and crematoriums, while hospitals are battling with a critical oxygen shortage. At this rate, India’s coronavirus death toll could be 10 times higher than reported. More developing countries have reported significant surges in infections in the past few weeks.

The US two studies found that the Pfizer-BioNTech vaccine is more than 95% effective at protecting against severe disease or death from the variants first identified in South Africa and the UK. Initial analysis of phase 2/3 testing of Moderna’s vaccine in adolescents 12 to 17 years old showed vaccine effectiveness of 96%. More than 1.21 billion doses have been administered across 174 countries at a rate of 19.7 million doses a day.

In Africa, over 4.6 million Covid-19 cases have been reported, with 123 640 deaths and 4.17 million recoveries. Africa aims to vaccinate up to 60% of the population by the end of 2022.

The African Union hailed the US for its remarkable leadership on the vaccine waiver.

Strong manufacturing Purchasing Managers Index’s in April 2021

The US IHS Markit manufacturing Purchasing Managers Index (PMI) rose to 60.5 in April 2021 from 59.1 in March 2021, the steepest since data collection began in May 2007, indicating a robust improvement in the strength of the manufacturing sector. The expansion was buoyed by the acceleration in output and new orders which increased at the sharpest pace since April 2010. The services PMI increased to a 12-year high of 64.7 in April 2021, from 60.4 in the previous month. The new business sub-index rose by the most marked pace on record, supported by a solid rise in new export orders and the pace of job creation was the fastest since last November. The UK IHS Markit/CIPS manufacturing PMI increased on the further easing of lockdown restrictions to 60.9 in April 2021, from 58.9 in March 2021, pointing to the sharpest rate of expansion in the manufacturing sector since a record growth rate in July 1994. The services PMI increased to 61.0 in April 2021, from 56.3 in March 2021, the strongest growth since October 2013 driven by sharp increases in business and consumer spending.

The Eurozone IHS Markit manufacturing PMI increased to 62.9 in April 2021, from 62.5 in the previous month, the fastest pace of expansion in the manufacturing sector since June 1997, remaining above the 50 points benchmark for the tenth successive month. The growth rates for both manufacturing output and new orders remained close to the previous month’s survey records as Covid-19 related restrictions were eased. The services PMI increased to 50.5 in April 2021, from 49.6 in March 2021, displaying the first expansion in business activity since August 2020. By country, Spain registered a marked increase in output, and marginal growth was seen in France, while Germany and Italy experienced contractions.

The US jobless new claims decreased to 498 000 in the week ending 1 May 2021, the lowest level since March 2020 when the pandemic first hit the US economy. This marked the fourth consecutive week of claims registering below 600 000 and a new low since the pandemic struck. The improvement in the labour market is supported by the improvement in the economy due to the accelerating pace of Covid-19 vaccinations and the $1.9 trillion relief package.

South Africa’s IHS Markit economy-wide PMI shows marked improvement in April business conditions

South Africa’s economy-wide PMI rose to a robust 53.7 points in April 2021, from 50.3 points in the previous month, the highest level since March 2012. The expansion was mainly boosted by significant increases in business activity and new sales orders which were supported by rising customer demand and orders from abroad. In contrast, the Absa manufacturing PMI declined by 1.2 points to 56.2 in April 2021, from a five-month high of 57.4 in March 2021. The business activity index decreased to 50.8 points in April 2021, from 56.1 points in March 2021. The new orders index also decreased in April 2021 to 58.7 in April 2021, from 60.4 in the previous month, while employment rebounded sharply. The expected business conditions in the next six months increased to a 3-year high of 67.9 in April 2021, from 57 in March 2021. The data print has been above the 50 points benchmark for nine consecutive months, which indicates that economic conditions are starting to normalise.

South African vehicle sales increased by 6 133% year on year in April 2021, from a gain of 31.8% year on year in March 2021, due to the low base comparison from the previous year amid the onset of the pandemic crisis. A total of 35 779 vehicles were sold in April 2021 compared to 574 vehicles sold in April 2020. A total of 22 911 passenger cars were sold in April 2021, compared to 105 sold in the same period last year, while 10 879 light commercial vehicles were sold in the month, from 880 sold in April 2020. Vehicle exports were up by 8 843% year on year to 26 522 units in April 2021, compared with 901 units exported in April 2020.

The first batch of Pfizer vaccines arrive in South Africa

On Sunday 2 May 2021, the first batch of Pfizer vaccines arrived in South Africa, with over 325 000 doses of the jab. Samples will be sent to the National Control Laboratory for quality assurance. The Health Ministry expects to receive 1.3 million doses from Pfizer by the end of May, which will be delivered in weekly batches of more than 325 000. SA will have received 4.5 million vaccines by the end of June 2021. Phase 2 of the mass vaccination campaign is expected to start in mid-May, targeting people older than 60 years, people with comorbidities and frontline workers such as police, teachers, community and industrial workers. Over 353 181 vaccines have been administered to date.

Domestic coronavirus infections have picked up slightly, with the number of daily infections breaching the 2 000 mark for the first time in several weeks. SA has the twentieth highest caseload at 1.5 million cases and 54 557 deaths, while 1.5 million people (or 95%) have recovered from the virus. Many organisations have called for the government to implement a travel ban on India amid concerns over the new Covid-19 variant circulating in that country and other parts of the world. Fears that the variant may have spread to SA after an individual who recently travelled from India was being treated for Covid-19 in a KwaZulu-Natal hospital and 14 crew members of a cargo bulk carrier that sailed to Durban from India tested positive for the coronavirus. SA is likely to experience the third wave of Covid-19 infections during winter when temperatures become cooler.

Global market performance was mixed on surging coronavirus cases in India

Over the week, the S&P 500 index decreased by 0.2% and is up 9.7% year to date. In Europe, the Euro Stoxx increased by 1.1% in the week, while the UK FTSE was up 2.0% on strong economic data. In Asia, the Shanghai composite index decreased by 0.7%. The MSCI ACWI increased by 0.3% in the week, while the MSCI EM decreased by 0.5%. Developed markets bond yields decreased on surging coronavirus cases. While emerging markets credit default spreads decreased on better growth prospects.

In commodities, Brent Crude oil increased by 1.4% over the week buoyed by upbeat economic data from the US and China, with the US jobless new claims decreasing below 500 0000 last week for the first time since the Covid-19 pandemic hit. Adding the bullish tone was easing restrictions on movement in the US and Europe, and robust vaccination campaigns

In the currency markets, the US dollar index depreciated by 0.5% in the week. The EUR/USD increased by 0.4% and the GBP/USD was up 0.6% in the week. The rand currency appreciated by 1.8% to R14.25 against the US dollar on a weaker dollar. The local currency has also been supported by the National Treasury’s announcement of a further reduction in the pace of the weekly local market issuance to R3.9 billion from R4.8 billion currently, this highlights that the fiscal consolidation is underway.

South African economic activity may be boosted following the arrival of the Pfizer vaccine
Photo by: Diana Polekhina