Standing Committee on Finance Sector Analysis 02 July 2014 Esther Mohube
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Transcript of Standing Committee on Finance Sector Analysis 02 July 2014 Esther Mohube
Standing Committee on Finance
Sector Analysis
02 July 2014
Esther Mohube
1
Structure of the presentation
Sector analysis – Global economic developments – Developments in the SA economy– SA Policy pronouncements – What are the Implications?
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3
Global economic developments
Region / country 2013 2014 2015 2014 2015 Change Percentage
World 3.0 3.7 3.9 3.6 3.9 -0.1Advanced economies 1.3 2.2 2.3 2.2 2.3 0.0Emerging markets and developing countries
4.7 5.1 5.4 4.9 5.3-0.2
Sub-Saharan Africa 4.9 6.1 5.8 5.4 5.5 -0.7
South Africa 1.9 2.7 3.2 2.3 2.7 -0.4
GDP projections: January 2014 GDP projections: April 2014
• IMF Global economic prospects January 2014– Economic activity improved & world trade strengthened in 2013
– Economic growth, 3 % in 2013
– Driven by export rebound in emerging market economies
– IMF expected growth to increase from 3 % in 2013 - 3.7 % in 2014 & 3.9 % in 2015
– On account of recovery in advanced economies
– SSA was expected to remain the fastest growing region
– SA economy to grow at 2.8 % in 2014 & 3.3 % in 2015
• IMF Global economic prospects: April 2014– Economic activity strengthened, expected to improve further in 2014 & 2015, supported
by advanced economies
– World GDP is expected to grow at 3.6 % (slightly revised by 0.1 percentage points) in 2014 & 3.9 % in 2015 (unchanged)
– Key drivers include reduction in fiscal tightening, except in Japan and still highly accommodative monetary policy
– SSA growth forecast to increase from 4.9 % in 2013 - 5.4 % in 2014 & 5.5 % in 2015
– SA economy expected to grow at a rate of 2.3 % in 2014 (revised down) & 2.7 % in 2015
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Global economic developments (cont.)
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Recent developments in the SA economy
Region / country 2014 2015 2014 2015 Change Percentage GDP projections: Dec to Feb 2014 2014 forecast
IMF 2.7 3.2 2.3 2.7 -0.4World Bank 2.7 3.4 2.0 3.0 -0.7OECD 2.7 3.4 2.5 3.2 -0.2SARB 2.8 3.3 2.1 3.1 -0.7
BER 2.8 3.5 1.8 2.8 -1.0
Fitch 2.8 3.5 1.7 3.0 -1.1
Standard & Poor's 2.7 ??? 1.9 2.9 -0.8
National Treasury 2.7 3.2 ??? ???? ???
Average 2.0 3.0 -0.7
GDP projections: April to June 2014
• NT Economic growth prospects: February 2014– Growth rate1.9 % in 2013– NT projected GDP of 2.7 % in 2014 & 3.2 % in 2015;– Drivers of growth:
• New power plants & transport infrastructure;
• Stronger global recovery expected to support exports;
• Growth in sub-Saharan Africa will promote expanded trade & investment.
• Economic growth prospects: Post February 2014 – SA economy contracted by 0.6 % in first quarter of 2014 (mining & manufacturing
sectors)
– Analysts, IMF, World Bank, Rating agencies, SARB, BER reduced SA growth rates from December/January 2014 forecasts
– The 2014 forecast revised down by 0.7 percentage points, on average – On average, SA economy forecast to grow at 2 % in 2014 & 2.9 % in 2015;– During the MTBPS period, NT will determine its latest forecasts– SA growth expected to be supported by stronger external demand
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Developments in the SA economy (cont.)
• Reasons for reduced growth forecasts – All analysts cited prolonged platinum strike activity as the main reason
– Electricity supply constraints,
– Deterioration of the SA growth outlook (Slow GDP growth)
– Risks posed by strike action on the fiscal consolidation path
• Other economic developments – Inflation rate expected to stay outside 3-6 % target range until 2015, currently 6.1 %
April 2014
– Interest rates hiked by 50 b.p. in April 2014, likely to increase by 25 b.p.
– Consumer spending environment constrained
– Unemployment rate stood at 25.2 % Q1 of 2014, from 24.1 % in Q3 of 2013
– Strike disputes in platinum mines have since been resolved as at June 2014
• What does that mean??– Economic environment has changed, recovery had been slow, outlook may have
deteriorated
– SA economy continue to growth below potential, pointing to the economy’s susceptibility to shocks
– Economy not creating sufficient jobs to absorb new entrants in the labour market
– These factors may have implications for the fiscus.
7
Developments in the SA economy (cont.)
Fiscal Implications – Countercyclical fiscal policy response to global economic crisis resulted in
large budget deficit– Deficit remained persistently high as revenue & growth forecasts were
repeatedly revised downwards– Deficit was expected to narrow from 4 % of GDP in 2013/14 to 2.8 % of
GDP in 2016/17; assuming the economic growth & revenue collection pick up pace
– Increased cost of borrowing for businesses & government;– Increased debt servicing costs, but net national debt expected to stabilise as
a % of GDP in 2016/17– Fiscal space has been eroded by rising debt.
8
What are the implications
NDP, Budget Review, SONA • Government prioritised the accelerated implementation of the NDP
• SONA acknowledged that the SA economy needs to grow at a faster rate, than the current rate of 1.9 % in 2013
• Measures to unlock economic growth potential include:
– Roll-out the infrastructure programme
– A wide range of job creation initiatives
– SMMEs
– Transformation of the energy sector
– Partnerships & collaboration between labour, business and the community
• Fiscal policy
– In the Budget Review released in February 2014, Government remain committed to maintain fiscal sustainability & keep its debt within manageable levels
– Fiscal consolidation path continues, the commitment to reduce the budget deficit remain
9
SA policy pronouncements
• SA economic outlook may have deteriorated, growth expected to be modest• Mining & manufacturing production sectors likely to continue to struggle• Scope for a Q2 growth rebound limited (strikes & consumer environment)• However:
– Platinum strike has been resolved by June
– Overall GDP growth likely to recover in the second half of the year
– New electricity capacity could provide the positive supply side shock which could help growth
– New ways to deal with labour market issues may assist
• The current fiscal stance (modelled on growth forecasts of 2.7 % in 2014) may have to be revised.
• Economic uncertainty remain a key risk to fiscal sustainability
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In Conclusion
Thank You
11
THANK YOU