SA post-lockdown economic recovery

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SA has endured over 70 days of lock downs and it would be instructive for us to examine how this has effected the economy.

Instead of using traditional economic indicators that have a month or more delay we can examine high frequency (weekly) data from the Google community mobility indices to try and figure out how the economy is recovering. These indices use Android smartphones and Google maps requests to anonymously track movement trends over time by geography, across different categories of places such as retail and recreation, groceries and pharmacies, parks, transit stations, workplaces, and residential. The Google community mobility reports are 7-days delayed, which means we only have a picture up to the 2nd week after Level 4 commenced (12 June 2020)

During lock-down, residential movement went up and workplace movement went down. To adequately track traditional economic activity, we can subtract residential movement from workplace movement to derive an Economic Mobility Index (EMI) and represent this as a % of the pre-lockdown trend. This is shown below together with cumulative SA Covid19 infections. It appears SA is at 45% of her pre-lockdown economic mobility as at 12 June 2020:

We can introduce a very useful two-dimensional effect to the EMI by using cumulative infections on the x-axis as opposed to the traditional time:

This new way of looking at the data is designed to measure the pace of economic re-opening and recovery as well as provide early warning of a potential 2nd wave of infections that could derail the recovery.

  1. Flatter slopes more than 45-degrees are less desirable outcomes and indicative of slow mobility recovery and/or increasing  infection rates (infections rising faster than mobility).
  2. Steeper slopes of less than 45-degrees angle are better outcomes characterized by rapid mobility recovery and/or decreasing infection rates (mobility rising faster than infections)

Should a 2nd wave of infections occur as the economy opens, the mobility curves will start to flatten and the dots representing the data will widen the spaces between each other.

We can see from the above chart that economic mobility came plummeting down, bottoming on 13 April when the initial hard lockdown was supposed to end. The two weeks of hard lockdown “extension” saw less compliance and mobility started creeping up as we approached the 1 May date when Level-4 lockdown measures kicked in. Economic related mobility then increased at a rapid rate in the ensuing 7 days and exactly 14 days after the lowest mobility reading, infections increased at a rapid pace, flattening the EMI substantially and widening the dots between points. Presumably the 7-14 day coronavirus incubation period was now kicking in due to the increased mobility of two weeks prior..

In the week leading up to Level-3 restrictions, mobility started picking up pace in anticipation of more relaxed regulations to be enacted on 1 June. However an interesting thing happened in the week following the relaxed regulations – mobility did not increase that much, in fact a lot less than it increased in the first week of Level-4, and infections increased pace again, flattening the EMI and widening the dots between points even more. Even more surprising however is that economic mobility hardly increased at all during the 2nd week of Level-3. Could this mean that Level-3 has run its course and we would need level-2 to increase economic mobility?

How do things look at a provincial level? We can apply the same principle above as shown below:

These 4 provinces account for 90% of SA’s total infection, and it is quite clear that infections are increasing at a pace far higher than mobility. Also economic mobility in Western Cape and Gauteng was far harder hit than Eastern Cape and KwaZulu Natal.

Whilst we appeared to get great bang for our buck going to Level-4, the economic benefits (measured by increased mobility) of the first week of Level-3 seem somewhat muted, rather than the big jump in mobility that was expected. The 2nd week of Level-3 lockdown provided even less increase in mobility. On this basis however, KwaZulu Natal seems to have benefited the most out of the move from Level-4 to Level-3 (better increase in mobility and less increase in infections), whilst Western Cape seems to have benefited the least.

Regardless of which province benefited the most or least, all 4 results are bad, as on the whole, infections are increasing at a much faster rate than economic mobility.

How is SA faring against the major 8 economies of the world that are coming out of lockdown?

The charts below show us that the US, Canada and Russia are struggling to grow their economies faster than infections (the slopes of their blue lines are less than 45-degrees, implying mobility is recovering slower than infections are growing) whilst the other five major economies seem to be faring very well emerging from lockdowns, with no major 2nd wave resurgences (just yet anyway!)

In terms of recovering lost pre-covid economic mobility, SA (at -45% of pre-lockdown activity) is better off than US (-41%) and UK (-65%), on par with Canada (-45%), and much worse off than France (-30%) Germany (-30%), Italy (-31), Japan (-20%) and Russia (-25%).

However SA’s slope of the economic mobility index to cumulative infections is around zero degrees whilst all the G8 range from 30-degree and up (bar Russia). With increasing infection rates and no increase in economic mobility, SA is considerably worse off than any of the G8. The only way the situation can be improved is to move SA from Level-3 to Level-2 lockdown, since Level-3 seems to have run its course. We can forget about reducing the infection rate – that horse has bolted.

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Dwaine has a Bachelor of Science honors degree and is a full-time trader and investor. His passion for numbers and keen research & analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.
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