Economic Outlook by sdsdfqw21

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									February 2010




                Economic
                Outlook

                Johann Els
    South Africa Looking back at 2009 - a year of
    big macro-economic surprises


         • Growth weakened much more than expected
           (especially HCE & exports)
         • Current account narrowed much more than expected
         • Rand firmed much more than expected
         • Budget deficit widened much, much more than expected
         • Inflation fell less than expected
         • Interest rates fell more than expected


         • Will 2010 be more predictable?




2
    Last year's growth drags


                Export volume growth             Consumer spending growth
         30                                10

         10                                 5

         -10                                0

         -30                               -5
            90 93 96 99 02 05 08             90    93   96   99   02   05   08

               Private investment growth          Change in inventories, Rbn
         20                                 60

         10                                 20

          0                                -20

        -10                                -60
           90 93 96 99 02 05 08               90 93 96 99 02 05 08


3
    Budget 2010/2011


     • Main features
       – Deficit direction
        –   SA’s relative fiscal position healthy
        –   Budget also growth supportive
        –   CPI target unchanged
        –   Reserve bank’s mandate unchanged
        –   No “pegging” of the Rand!
        –   No tax surprises


     • Other features
        –   Tax relief for individuals
        –   Slower expenditure growth next few years
        –   Conservative assumptions
        –   NHI to be investigated further
4
Fiscal deficit trend to improve


      Budget balance, % of GDP (actual & Treasury targets)
  2                                                                                2
       09/10: Actual -7.2%)
       10/11: Budget -6.5%
  0                                                                                0



 -2                                                                                -2



 -4                                                                                -4



 -6                                                                                -6



 -8                                                                                -8
      61   65    69    73     77   81     85    89    93     97   01   05   09   13
    SA looking much better than some other
    economies
                                   Greece South Africa

            GDP growth                              Fiscal balance as % of GDP
      7.5                                      5

                                               0

      5.0                                     -5

                                             -10
      2.5                                    -15
                                                   80   85    90   95   00   05   10
                                                Govt debt as % of GDP
      0.0                                    120
                                             100
                                              80
     -2.5
                                              60
                                              40
     -5.0                                     20
            02    04     06   08      10           80    85   90   95   00   05   10

6
PIGIS’ troubles
(Portugal, Ireland, Greece, Italy, Spain)


                      Current
                                 Budget               Public debt
                      account               Public
                                balance, %            service, %
                     balance, %            debt, % of
                                 of GDP,               of GDP,
                      of GDP,              GDP, 2009
                                   2009                  2010
                        2009

   Spain                -6.1        -11.4     55.2        4.7
   Italy                -3.5        -5.4      113.9      14.1
   Greece               -11.9      -12.7      113.4      11.6
   Portugal             -10.1       -9.3      76.6        3.9
   Ireland              -3.0        -11.6     64.5        6.2
   SA                   -4.5        -7.6      29.2        2.9
Weak growth aggravates PIGIS’ debt troubles
reducing deficits is hard if the economy is not growing


                        GDP       GDP        GDP        GDP        GDP
                       growth    growth     growth     growth     growth
                        2007      2008       2009       2010       2011
                       actual    actual    estimate   forecast   forecast



      Spain              3.6       0.9       -3.6         -0.6     1.1

      Italy              1.5       -1.0      -4.8         1.3      1.6

      Greece             4.0       2.0       -1.2         -0.3     1.6

      Portugal           1.9       0.0       -2.7         0.9      1.2

      Ireland            6.0       -3.0      -6.7         0.2      1.7

      SA                 5.5       3.7       -1.8         3.5      4.0
    Outlook for 2010

     Growth:
     •   Private sector demand weak for another quarter or so
     •   Public sector, exports and inventory cycle now lending support
     •   Inventory cycle can deliver strong boost to production side of the economy
     •   Growth momentum to accelerate from Q2
     •   Upside surprise possible from Q2: we have above consensus 2010 forecast
     External accounts & ZAR
     • Current account deficit to widen moderately through 2010
     • ZAR should have weaker bias (eventually – we still think it is ‘too strong’)
     Inflation
     • To dip into range, stay just inside, barring any shocks (oil, ZAR, food)
     • Medium term prospects still a concern
     Interest rates
     • Some chance of another cut
     • Rates to remain flat likely through 2010


9
     SA economy looking up

            Growth in VAT collections                               Car sales (seas adj, '000)
      40                                                       40
                                                               35
      20
                                                               30
       0                                                       25
                                                               20
      -20
                                                               15
      -40                                                      10
         96     98    00    02    04    06    08   10               96   98   00   02   04   06   08   10
            Manufacturing        Electricity production             Mortgage credit (seas adj, mthly ch Rbn)
      120                                                 22   20
            production
      110                                                      15
                                                          20
                                                               10
       98                                                 18
                                                                5
       90                                                 16    0

       83                                                 14   -5
         96      98   00    02     04   06    08   10               96   98   00   02   04   06   08    10

10
     Inventory cycle could support production
     more than expected in 2010
     60                                40
          Change in inventories, Rbn        Inventories as % of GDP

     40


     20                                30


     0


 -20                                   20


 -40


 -60                                   10
    60 65 70 75 80 85 90 95 00 05 10     60 65 70 75 80 85 90 95 00 05 10

11
No change to inflation target

   Assumptions:
 14 Rand: 8.25 end ’10; 8.80 end ‘11                               14
     Oil:   $85/bbl end ’10; $90/bbl end ‘11
     Food: 5.5% end ’10; 7.0% end ‘11
 12 Eskom: 35% ’10; 35% ‘11                                        12

 10                                                                10


  8                                                                8

  6                                                                6


  4                                                                4

  2                                                                2


  0                                                                0
      97       99        01        03          05   07   09   11
     CPI food inflation


              y-o-y % change                  m-o-m % change
        25                                                 2.5

        20                                                 2.0

        15                                                 1.5

        10                                                 1.0

          5                                                0.5

          0                                                0.0

         -5                                                -0.5

        -10                                                -1.0
              99         01    03   05   07      09

13
     Food price trends
                                           Y-o-y % change

            Maize & Wheat                                  Fruit, meat & vegetables
       80                                            50
            Weighted futures prices
                                                                       Weighted market prices
                  CPI grain
                                                                       Stats SA
       60                                            40

                                                     30
       40

                                                     20
       20
                                                     10
        0
                                                       0

      -20
                                                    -10

      -40                                           -20
            01    03     05     07    09                   01     03       05     07     09

14
     Goods inflation rates
                                      Y-o-y % change

     20                                        20                                     20
          Furniture                                  Clothing & footwear
          Appliances                                 Vehicles
     15

                                               10                                     10
     10



      5
                                                0                                     0

      0



     -5                                       -10                                     -10
          00   02      04   06   08   10            00   02     04     06   08   10

15
 No “pegging” the Rand


     15.0                                              15.0
                      Rand per Euro
                      Rand per Dollar

     12.0                                              12.0



     10.0                                              10.0




      8.0                                              8.0


      7.0                                              7.0




      5.5                                              5.5
            00   02            04       06   08   10

16
Rand is holding firm

                            Nominal trade weighted Rand
       OMIGSA calculation
 220                                              220
       Index 3 Jan 2000 = 100



 180
                                                  190

 160
                                                  175


                                                  160
 130
                                                  150

 110


  98                                              130
       00      02      04       06     08    10           08   10
Why has the Rand behaved so well?

 ▲   Combination of: fiscal situation, real rates, growth outlook

 ▲   Fiscal situation
         SA Budget deficit large, but…
         Govt debt level & debt service still low
         Public commitment from Govt to lower the deficit back over time
         (Budget delivers good intentions, must be met)
 ▲   Real rates
     ▲   Still relatively high in global context
     ▲   So, less need to tighten (harming growth outlook)

 ▲   Growth prospects
         Economy to grow faster 2009/10, good for revenues
     Thanks to healthy fundamentals

           Govt debt as % of GDP                        Real policy rates
     125                                           15

             Greece
     100      Italy                                10                       South Africa

             Spain

      75     Portugal                               5



      50                                            0



      25                                           -5        Thailand
                                                             South Korea
                                                             India
            South Africa                          -10
       0
         80  85    90    95        00   05   10         00              05                 10

19
  SA Summary
• Economy recovering, still unevenly & slowly:
      But already starting to gather momentum?

• Inflation sticky, outlook improving a bit on the margin

• Current account improving as imports remain depressed, exports recover
  moderately

• ZAR firm, may remain so for a while longer
     Global economy: What was the key call
     and its implications in 2009?


      • Global recovery would be V-shaped (at least initially)
         – Driven by policy stimulus, slower inventory cutbacks,
           foreign trade recovery

      • Drove investors out of panic mode into renewed risk
        appetite




21
     Sharp slump, sharp recovery

                                 GDP growth quarter on quarter annualised

      10                                                   20



       5                                                   10



       0                                                    0



      -5                                                 -10
                                                                      Russia *
                                                                      Brazil *
     -10        USA                                      -20          China
                                                                                      SA *
                Euro area                                             India *
                Japan
     -15                                                 -30
           01       03      05     07      09                   01     03        05     07   09
                                     * indicates Q4 '09 data are estimates
22
     But look at the levels!

                                Real GDP levels (index 2000 = 100)
      119                                             225
              USA
              Euro area                                                      China
      115                                             200
              Japan                                                          India *
      113
                                                      175

                                                      160
      109
                                                                                   Russia *
      106                                             140


      103                                             125
                                                                                       SA *
      101                                                                              Brazil *
                                                      110

       98                                               98
         01      03       05   07     09                  01       03   05       07        09
                                * indicates Q4 '09 data are estimates

23
     2010: Global recovery?

      • Global recovery: Boom, moderate growth or renewed downturn?
         – Recovery will be sustained (why?), but at moderate pace
         – Policy tightening will broaden in 2010, nature & tempo slow/well
           ‘signalled’
         – W-shaped cycle risk small



      • Why sustained recovery?
         – Policy settings remain broadly expansionary
         – From recession drivers to growth drivers: inventories, foreign trade,
           housing, labour markets & capex
         – Asset price recovery aiding required balance sheet adjustments
         – China set to sustain solid growth




24
     USA employment recovery

                        Total non-farm workers Temporary workers

              Monthly change ('000)                        Number (millions)
       600                                  75     138.0                       2.7


       400                                  50                                 2.4
                                                   132.5

       200                                  25     128.0                       2.1

                                                   125.0                       1.9
         0                                  0
                                                                               1.7
      -200                                  -25    120.0
                                                                               1.5
                                                   116.0
      -400                                  -50

                                                   112.5                       1.3
      -600                                  -75

      -800                                  -100   107.5                     1.1
         92   95   98   01   04   07   10               92 95 98 01 04 07 10

25
     Chinese growth remains robust

           Real retail sales growth                   Car sales growth
      25                                        200

      20                                        150
                                                100
      15
                                                 50
      10
                                                  0
       5                                        -50
           01      03      05         07   09         01    03     05    07   09
           Industrial production growth               Bank loan growth
      25                                         35
                                                 30
      20
                                                 25
      15
                                                 20
      10                                         15

       5                                         10
           01      03      05         07   09         01    03     05    07   09

26
     2010: Inflation?

      • Global recovery: Boom, moderate growth or renewed downturn?

      • Will inflation become a problem?
         – Headline rates rising on commodity price recovery/base effects,
           core contained
         – No serious threat in 2010, some risks for 2011/12
           (but worry more about policy?)




27
 Global inflation picture


          Y-o-y % ch                  Y-o-y % ch
     6                           20



                                 15
     4


                                 10
     2


                                  5
     0

                                  0

     -2

     -3                          -5
           05          07   09         05          07   09
28
     Collapsing effective labour costs keep
     core inflation under control - USA

      15                                                                       15
                                   Unit labour cost growth
                                   Core inflation

      10                                                                       10




       5                                                                       5




       0                                                                       0




      -5                                                                       -5
           68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10


29
     2010: Risks…


      • Global recovery: Boom, moderate growth or renewed downturn?

      • Will inflation become a problem?

      • Are there any remaining serious potential shocks?
          − Shocks can not be predicted, but there are remaining drags/risks
          − Key drags: pressured consumers, stingy banks, fiscal constraint coming
          − Key risks: country (fiscal), commercial property & policy error
          − No real loud voices about any specific looming large disasters, but
            some ‘mini-shocks’ still very possible




30
Recent global developments: Market panic

• Slowdown worries
      Recent US, Eurozone, UK data softer than expected
      Worries China’s policy tightening will slow economy sharply
      Worries that fiscal consolidation will inhibit growth more broadly too
• PIGIS: (Portugal, Ireland, Greece, Italy, Spain)
      Panic Greece will default – deficit reduction plans viewed with scepticism
      Growing view € too strong given region’s troubles (ECB can’t raise rates)
      Worries over €-zone as an ‘entity
      So, € fall no real surprise
• Lingering policy worries
      Korea, India, Thailand inflation exceeds CB policy rates – rates to rise
      China expected to tighten further
      Fiscal tightening & medium term implications the key worry
      Real policy rates also unsustainably low in many countries, need to rise
USA data soft past few weeks


      PMI manuf                                  Pending home sales
  65                                      130                                     130
      PMI services
  60                                      120                                     120
  55                                      110                                     110
  50
  45
  40                                       93                                     93
  35
  30                                       80                                     80
     00    02      04      06   08   10          00   02    04    06    08   10
      Vehicle sales                              Monthly employment change
 22                                        500
 18                                        250
                                             0
 13                                       -250
 11                                       -500
  9                                       -750
      00     02       04   06   08   10          00   02    04    06    08   10
     Chinese authorities starts gradual
     tightening process
                         Chinese interest rate & reserve requirement ratio
            1-year working capital rate                                        Bank's RRR*
       14                                                                                        18



       12
                                                                                                 15


       10



        8                                                                                        10


        6


                                                                   * Reserve requirement ratio
        4                                                                                        5
            85   87    89    91    93     95   97   99   01   03      05    07     09     11


33
Fed raises Discount Rate (DR):
what does this mean?
• Fed at pains to emphasise this is:
      A normalisation of its operating procedures as funding markets return to
      normal
      Not a tightening of policy: “…do not signal any change in the outlook for
      the economy or for monetary policy…” and repeats “…economic
      conditions are likely to warrant exceptionally low levels of the FF rate
      for an extended period.”
• What should we read into this?
      Fed sees less stress and freer flow of liquidity in funding markets
      Fed is keen to normalise its operating procedures
      This is not the end of easy money, but the beginning of the end
 Fed’s interest rate actions


     8                                     3
          Fed funds rate                         Gap between discount
          Discount rate                          rate and fedfunds rate


     6                                     2




     4                                     1




     2                                     0




     0                                     -1
         00     02     04   06   08   10        03       05        07     09

35
Our view on recent developments

 ▲   Markets waking up to some painful realities, rather than moving
     into entirely different scenario
        The fiscal troubles have been lingering around for a while
        Recent slowdown signs are not unexpected
        A major renewed global slump still looks unlikely: policy still supportive,
        labour shake-out ending, world trade recovering, housing stabilising, China to
        continue on solid growth path
        Market turmoil & downside growth risks will keep policy tightening slow (may
        even postpone it?)


     Growth outlook has not been fundamentally changed by recent events

     Rather, they have highlighted the drags on global growth over the
     medium term, as well as the downside risks
     Global summary


     • Global environment unfolded broadly as expected in 2009
         − Earlier & stronger recovery than consensus expected


     • Outlook 2010
        − Macro trends broadly settled & outcomes look fairly predictable
        − Recovery to continue, but not without setbacks, mini-shocks & worries
            (there always are, as is happening as we speak)


     • Policy outlook:
         − Policy to remain very expansionary until all doubts about sustainability of
           recovery have been removed
         − Gradual tightening to spread
         − Fiscal positions in focus – limited scope for further support, serious troubles
           in some countries


37

								
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