Economies at a glance · uncertainty around th e future course of the COVID - 19 pandemic and rivalry with the United States pose downside risks to the recovery. Although discretionary

Economies at a glance July 2020

Although the economy may experience a bounce in the third quarter of 2020 from a loosening of COVID-19 restrictions, the continued fight against the disease has altered consumer demand patterns in the entertainment, accommodation and food services industries. The continuing high level of uncertainty has further stalled investment spending and restrained productivity gains. The negative shock to demand has also driven down inflation, which is unlikely to ratchet higher in a world of elevated unemployment, leaving firms with little pricing power. The Federal Reserve’s (Fed) urgent and sizeable actions, including those in non-traditional areas, calmed financial markets. Although these measures will have to be unwound at some point, the Fed has pledged to keep monetary policy loose until inflation emerges and as such, it may even tolerate a breach of the 2% target.

The economy has started to show signs of a recovery as strict containment measures imposed earlier in the

year have started to ease. Nevertheless, output is likely to remain below trend at least into 2022, which

will keep a lid on price pressures. The COVID-19 pandemic is expected to have a varied effect across countries in the Eurozone, with those relying more

heavily on tourism or tackling more fiscal constraints facing a more severe economic fallout and a slower

recovery. A final agreement has been reached on the €750 billion pandemic recovery fund to share the

costs of economic reconstruction and ease mounting pressure on more highly indebted nations. This marks a step forward towards a fiscal union and may help to

calm anti-European Union sentiment, allowing for greater political and economic stability.

Although the worst of the economic slump is likely behind the United Kingdom as the most restrictive lockdown measures have been lifted, consumers and firms are adjusting to a post-COVID-19 environment and this may delay a full recovery in demand. In the near term, firm failures and damaged supply chains will weigh on productive capacity preventing a quicker return to pre-COVID-19 economic activity levels. Moving to a post-Brexit regime will slow the recovery even further, in our view. The Bank of England swiftly deployed measures to stabilise markets, but incentives to encourage investment and household spending, including a cut in the consumption tax, would provide a further boost. A re-escalation in COVID-19 cases in urbanised areas

of Japan led the government to announce approval for local governments to impose restrictions, without the

country needing to reimpose a state of emergency or a national lockdown. While the economy likely hit a

bottom in the second quarter of the year, the stimulation of consumer demand induced by benefit

payments is only likely to be temporary and the economy is expected to shift to a slower recovery after

an initial bounce. A steady uplift in bank lending and more stable financial markets created some breathing room for the Bank of Japan, allowing it to maintain an

unchanged interest rate and no alteration to other monetary easing steps in July 2020.

Forecast 2020: GDP: -5.7%

Inflation: 0.8% Forecast 2021:

GDP: 3.5% Inflation: 1.6%

Forecast 2020: GDP: -8.1% Inflation: 0.4% Forecast 2021: GDP: 3.4% Inflation: 1.1%

Forecast 2020: GDP: -9.0%

Inflation: 0.8% Forecast 2021:

GDP: 3.9% Inflation: 1.4%

Forecast 2020: GDP: -4.7% Inflation: -0.1% Forecast 2021: GDP: 1.5% Inflation: 0.3%

After slumping 6.8% in the first quarter of 2020, economic activity surprised positively in the second quarter and rose 3.2% from a year earlier. Nonetheless, the possibility of a resurgence in COVID-19 cases, elevated global economic uncertainty around the future course of the COVID-19 pandemic and rivalry with the United States pose downside risks to the recovery. Although discretionary fiscal measures of 4.1% of gross domestic product were deployed in the first half of the year, Chinese officials still have a range of tools left in their arsenal to bolster the recovery, including fiscal spending, tax relief and cuts to the lending rate and reserve requirements. An overhang of debt has nevertheless reined in the stimulus response as deleveraging efforts remain key.

Many economies are being left behind as aggregate economic activity in emerging markets makes a hopeful upward turn. Lockdowns have eased in

almost all regions, but an uneven recovery in output is projected among the constituent countries.

Economic momentum is gaining in Asia and parts of Emerging Europe, while COVID-19 outbreaks are still

plaguing parts of Latin America, South Asia, the Middle East and Africa. While fiscal space has been

exhausted in a number of economies, monetary policy may ease at the margin given benign inflation

and soft growth. More central banks have also turned to unconventional policies, particularly where

monetary policy space is more constrained.

A surge in infections has hit South Africa with Gauteng, the Western Cape and the Eastern Cape showing the most COVID-19 cases. Although government announced a further easing under level three restrictions to allow a larger number of additional businesses to operate, financial hardship has deepened for many firms and consumers. The least skilled and lowest paid jobs have borne the brunt of the employment losses to date and malnutrition cases are on the rise. Households are increasingly relying on savings, unemployment insurance fund payments, social grants and loans from family and friends to make up for lost incomes, but inevitably higher levels of unemployment will exacerbate inequality. Urgent fiscal decisions are necessary to avoid a debt trap but tepid growth and rising social needs will complicate fiscal consolidation. Room to ease monetary policy aggressively from here looks more constrained but tame inflation and a poor growth prognosis could lead to a further 25 basis-point interest rate cut.

Forecast 2020: GDP: 1.1%

Inflation: 2.8% Forecast 2021:

GDP: 5.9% Inflation: 1.8%

Forecast 2020: GDP: -0.7% Inflation: 3.5% Forecast 2021: GDP: 4.0% Inflation: 3.2%

Forecast 2020: GDP: -8.1%

Inflation: 3.0% Forecast 2021:

GDP: 2.0% Inflation: 3.6%

Reasonable steps have been taken to ensure the validity and accuracy of the information in this document. However, Momentum Investments does not accept any responsibility for any claim, damages, loss or expense,

howsoever arising out of or in connection with the information in this document, whether by a client, investor or intermediary. The content used in this document is sourced from various media publications, the Internet

and Momentum Investments. For further information, please visit us at www.momentuminv.co.za. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services and registered

credit provider, and rated B-BBEE level 1.

The macro research desk

Herman van Papendorp is the head of the Momentum Investments research and insights team and takes ultimate responsibility for macro research and asset allocation. Economist, Sanisha Packirisamy, is responsible for providing a macro framework to inform investment opportunities and strategies.

Indices summary for July 2020

One Three One Three Four Five Six Seven Ten month months year years years years years years years

Equity indices FTSE/JSE All-Share Index (ALSI) 2.56% 10.83% 1.58% 3.63% 4.60% 4.58% 4.55% 7.65% 10.31% FTSE/JSE Shareholder Weighted Index (SWIX) 2.37% 9.57% -1.69% 0.72% 1.70% 2.59% 3.56% 6.91% 9.99% FTSE/JSE Capped SWIX All Share index 3.01% 9.74% -5.13% -1.54% -0.63% 0.65% 1.93% 5.47% FTSE/JSE All Share Top 40 Index 2.43% 10.94% 4.62% 4.93% 6.03% 5.13% 4.90% 8.08% 10.62% FTSE/JSE Mid Cap Index 1.71% 8.11% -14.49% -4.43% -4.81% 0.08% 1.09% 3.94% 7.44% FTSE/JSE Small Cap Index 1.29% 9.15% -22.34% -11.44% -8.57% -5.49% -2.79% 0.90% 6.37% FTSE/JSE Resources Index 9.04% 25.19% 29.31% 23.05% 19.83% 14.41% 3.35% 7.20% 5.27% FTSE/JSE Financials Index 0.40% 1.25% -29.71% -9.92% -6.44% -5.90% -1.46% 2.55% 6.89% FTSE/JSE Industrials Index -1.28% 5.04% 1.46% 0.22% 2.09% 2.82% 4.99% 7.66% 13.49% FTSE/JSE Research Affiliates Fundamental Indices 40 Index (RAFI)

1.39% 9.06% -9.86% 1.04% 3.00% 3.71% 2.35% 5.88% 8.32%

FTSE/JSE Research Affiliates Fundamental Indices All Share Index

1.63% 9.34% -10.34% 0.48% 2.55% 3.18% 2.00% 5.41% 7.92%

FTSE/JSE SA Listed Property Index (SAPY) -3.19% 8.97% -41.19% -20.18% -14.87% -10.55% -4.68% -2.37% 3.67%

Interest-bearing indices JSE ASSA All Bond Index (ALBI) 0.61% 6.44% 4.25% 7.79% 7.63% 7.40% 7.54% 7.49% 7.93% JSE ASSA All Bond Index 1-3 years (ALBI) 1.26% 3.36% 11.89% 9.75% 9.56% 9.21% 8.75% 8.31% 8.04% JSE ASSA SA Government ILB Index -1.19% -1.02% -4.38% 0.31% 0.16% 1.42% 2.39% 3.39% 5.84% Short-term Fixed Interest Composite Index (SteFI) 0.42% 1.36% 6.66% 7.10% 7.24% 7.18% 7.04% 6.81% 6.47%

Commodities NewGold Exchange-Traded Fund 8.50% 7.36% 64.84% 25.61% 15.28% 18.95% 15.51% 14.16% 14.06% Gold price (in rands) 8.34% 6.43% 63.33% 25.84% 15.28% 18.99% 15.83% 14.37% 14.52% Platinum Exchange-Traded Fund 7.39% 8.94% 24.07% 7.26% -1.25% 3.99% -0.71% -0.25% Platinum price (in rands) 10.01% 7.61% 23.78% 7.77% -0.67% 4.48% -0.14% 0.16% 0.09%

Currency movements Rand/euro movements 3.20% -0.08% 27.53% 8.95% 6.74% 7.63% 5.82% 6.26% 7.78% Rand/dollar movements -1.95% -7.31% 20.08% 8.85% 5.27% 6.22% 8.02% 8.05% 8.83%

Inflation index

Consumer Price Index (CPI) 2.22% 3.75% 4.08% 4.51% 4.55% 4.84% 5.00%