This column was first published in Business Day.

Will the post Covid-19 recovery be like the Roaring Twenties, a period of flourishing economic growth and prosperity after the Spanish Flu pandemic? Or will it be like the prolonged recession after the global financial crisis, with businesses and consumers restraining consumption?

The case for a strong recovery works as follows. The pandemic has created pent-up demand. Because of lockdowns and other restrictions, consumers have not been able to spend. Once life goes back to normal, they will have both the money and desire to go on an economy-driving splurge.

The first premise — that people have been saving — is borne out by data. Savings have hit record highs. The US personal savings rate hit 34% (being the amount of disposable income saved rather than spent in a month) in April 2020 and has remained far above its long-run average of 7%-8%. In Europe household savings rates rocketed to over 24% in June but have fallen faster and now are only marginally above the long-run trend.

In SA we’ve seen similar trends. We measure savings as a percentage of GDP, in which corporate saving jumped to 22.5% (annualised) in the third quarter from a long-run average around 13%, with even the notoriously low household savings rate leaping to 2% from long-run figures of closer to zero. That has been matched by deleveraging figures that show both households and, after an initial jump as companies accessed overdraft facilities, corporates, reducing borrowing sharply.

So, the bullish case has it that all this money, combined with pent-up demand and our repressed desires to party hard, will combine for a roaring economic recovery.

There are two problems with that story. First, a higher savings rate doesn’t mean more savings overall. The economic effect of the crisis means incomes are sharply lower, even if more of them are being saved. Not everyone has kept their jobs and have faced wage cuts. SA GDP for 2020 is expected to be about 7%-8% down.

However, while it is bad for poverty and inequality levels, it appears the jobs impact has been primarily on the more economically vulnerable. Formally employed people, especially public servants, have been unscathed. That means savings have accumulated in the hands of those with a higher propensity to spend. Indeed, Reserve Bank data shows that net wealth, while hit in the first quarter, recovered in the second quarter.

The main thing to understand is how much of the savings rate is driven by forced delays in consumption, and by households’ fears about the future. We can expect delayed consumption to unwind, but precautionary savings will not. The global financial crisis also saw increased savings, but only because households were afraid. It took five years for that to dissipate.

On balance, my view is that there will be a splurge to some extent. Forced saving is a reality of this crisis that is not shared with the financial crisis. But this is vulnerable to overly hasty efforts by governments to repair their balance sheets. While households and companies had a spike in savings, governments did the opposite. In SA, the government dissaved at about 9% of GDP (annualised, seasonally adjusted) in the second and third quarters. Worldwide, governments will need to repair balance sheets, which means increasing taxes and choking demand. But all governments are promising not to do this too quickly.

Of course, none of this will happen if we don’t get to the other end of this pandemic. The countries implementing vaccination programmes will do sooner. Unfortunately, SA belatedly conjured up a vaccine strategy last week while other countries have had task forces on it since April 2020. That means it will probably take until the end of 2021 for local consumption to rebound.

Luckily for us, global demand will drive our economy even if domestic demand is delayed. It will come to us through increased exports, which have been a surprise strength in the past six months. Our strongly positive trade balance has supported the rand while helping corporate earnings in some main sectors. As global demand recovers, we should expect export demand to be a strong channel of support into our economy more broadly. Of course, the delay to domestic demand will mean we lag other markets overall.

The recovery, then, will be positive, though not as strong as some optimists are suggesting. Many who have been damaged by this experience will be cautious and want to derisk by increasing savings. We also must be wary of being overly reliant on short-term froth. The Roaring Twenties, after all, turned into the Great Depression a decade later. It was also helped by supply-side factors such as large-scale electrification and motor vehicles.

Consumption-driven demand does not support long-term growth the way investment in capacity and efficiency does. SA needs a policy environment that drives companies in particular to invest. The risk is that a consumer-driven recovery allows policy reforms to drift off the agenda and before long we’re back in the malaise of zero growth we were before the Covid crisis.

• Theobald is chair of Intellidex.