The Economic Outlook for 2010 [EDocFind.com]

8/7/2019 The Economic Outlook for 2010 [EDocFind.com]

1/23

1

THE ECONOMIC OUTLOOK FOR 2010

A BUSA PERSPECTIVE

MEDIA BRIEFING

9 DECEMBER 2009

JOHANNESBURG

EMBARGOED UNTIL 14H00 ON WEDNESDAY, 9 DECEMBER 2009


2/23

2

LOOKING BACK AT 2009

2009 is seen by business as a political and economicwatershed for SA.SAs new government marks an important transitionfor the country on a national, regional and globallevel.

Impact of global economic crisis on countries like SAfirst recession in SA in 17 years.Convergence of political and economic factorsgenerated both expectations and uncertainty.Balance between continuity and change in SouthAfrica over the five years important to decision-makers in both the public and private sectors.


3/23

3

IMF Growth Forecast2009 2010

US -2.7 1.5

Euro Area -4.2 0.3

China 8.5 9.0

Brazil -0.7 3.5

India 5.4 6.4

South Africa 1.9 1.5


4/23

4

And economic climate has improved

40

50

60

70

80

90

100

110

120

86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Ifo World economic climate survey 1995=100


5/23

5

GLOBAL ECONOMIC ENVIRONMENT____________________________________________________

Medium-term outlook

- Developed economy growth will be modest,hampered and impaired financial markets

- Developing economies will fare better, helped bybetter demographics, financial positions andresources.

- South Africa and Africa helped by this mix ofgrowth

- Liquidity less abundant, but adequate- However, overall picture less favorable as large

chunk of world demand has potentially vanished.


6/23

6

SOUTH AFRICAS POSITION

-SAs initial position was relatively good- SA banking and financial sectors not

directly affected by sub-prime and locally

limited securitization and geared plays

- Banks not reliant on foreign funding;

used to operating under more stressed(volatile) assumptions; and capital,

liquidity and gearing more favourable

- SA external debt modest compared with

other emerging countries- Short-term debt maturity profile also

modest


7/23

7

- Companies not heavily borrowed in foreign currencies no

necessity to defend currency and therefore no vicious cycle

evident in some other economies

- Already a stimulus package in place; government was

underborrowed at around 21% of gdp (net loan debt)

- Room to cut interest rates was significant- Rand could act as a buffer

- Agriculture and 2010

Although..- Current account deficit was high

- In 2008 economy was already heading for a softlandingthe global crisis made it a hard landing

SOUTH AFRICAS POSITIONcontinued


8/23

8

In the event the downturn was sharp

-8

-6

-4

-2

0

2

4

6

8

10

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

G p: Q-o-q % cha ge (saa )


9/23

9

but employment has fallen by more than expected and more in the informal sector

-16

-14

-12

-10

-8

-6

-4

-2

0

Formal non-

agricultural sector Informal sector

Agricultural

employment Domestic work Total employment

Percentagechangeinemploym

ent


10/23

10

Manufacturingwas particularly hard hit, butsomerecovery

underway

-25

-20

-15

-10

-5

0

5

10

15

2025

99 00 01 02 03 04 05 06 07 08 09

60

70

80

90

100

110

120

Y- -y Manu

Index

Y- -y


11/23

11

But the currency has been strong

3.5

3.9

4.3

4.7

5.1

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-40

-30

-20

-10

0

10

20

30

Deviation fro neutra

Rea effective rand

Index1970 100 % fro adjusted "fair" va ue


12/23

12

Inflation is back in the target range but there are upside risks

2

3

4

5

6

78

9

10

11

12

13

14

98 99 00 01 02 03 04 05 06 07 08 09 10

%

CPIX

CPIX/CPI annua avera eTar et ran e

CPI new


13/23

13

Fixed invest ent spendingplansgenerally ave been re dest

Ann uncedvalue ft tal capital pr jects

0

100

200

300

400

500

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

-10

-5

0

5

10

15

20

Public Sect r

Private Sect r

Actual gfcf

Nedbanksc edule: billi n(c nstant 2008 prices) Actual gr t in capital f r ati n%

*

*T e 2009 figure is t eannualisedvalue fann uncedpr jects in t efirst alf ft eyear


14/23

14

SIGNS OF RECOVERY BUT ROAD AHEAD ISSTILL TOUGH

BUSA believes South Africa has technically ended its

recession, with economic growth of 0.9% in Q3 2009.

Inflation has also dipped into the target band

These are positive signs, but must not detract from the

reality that our economy remains weak. Any recovery

from this crisis is likely to be gradual and we must

acknowledge that there is still much that needs to bedone.

Our view is that the recovery is therefore likely to be a

slow one in which the pace of global recovery is an

essential factor.

Spending related to the 2010 FIFA World Cup and

tourism and tax income generated will support the

recovery.

Employment growth is likely to lag the economic

recovery


15/23

15

WHAT HAS SA BEEN DOING IN THE SHORT-

TERM TO COMBAT RECESSION?

THREE COUNTER-CYCLICAL POLICY TOOLKITS

1. Fiscal policy (Budget 11th February 2009 and mini-budget 27th October 2009)

2. Monetary Policy (latest MPC decision 17 November2009)

3. Framework Response to the Global Crisis (Presidency19th February 2009 and latest progress report toPresident 3rd December 2009)


16/23

16

MANAGING THE FISCAL CHALLENGE1

1. We need to accept that the dramatic increase in social welfare spending

over the past 15 years or so has limited the fiscal space for expansion in

other areas, such as education, health, policing and housing.

2. The economic debate needs to be repositioned. The development of the

social security system has been possible only because fiscal and monetary

policy created the fiscal space to raise welfare payments and hencelimited the ability of government to address delivery in other areas,

including infrastructure3. The negative shock to the SA economy of the global crisis has

immediately opened up a fiscal deficit of about 7,6% of GDP (on present

estimates). Under this weight of new borrowing the fiscal space created

by previous reductions in government debt for the expansion of welfarepayments will soon disappear and compel the need for tough choices

across spending programmes.


17/23

17

MANAGING THE FISCAL CHALLENGE2

It will therefore be necessary to drastically improve

efficiency in government spending and for public sector

spending to cut its coat according to its cloth in the

years aheadWe need to resuscitate the national output and income

if we can succeed in this, we can be sure that, over a

period of time, the yield of taxes will respond. The

national income, which is the taxable corpus, should be

our chief concern at this stage. We must not damage thebody by putting the burdens on its strength which it

cannot support until we have given it time to recover.


18/23

18

IF ESKOM GETS 35%P.A. TARIFF INCREASEOVER 3 YEARS IN 2010 THE FOLLOWING

SCENARIO IS POSSIBLE

INFLATION GROWTH EMPLOYMENT

YEAR 1 0,3% -0,5% -0,2%

YEAR 2 0,3% -0,7% -0,3%

YEAR3 0,3% -0,3% -0,1%


19/23

19

BEYOND THE RECESSION

Todays difficult economic environment underscores theimportance of not losing sight of long-termcompetitiveness fundamentals amid short-term urgencies.Competitive economies are those that have in placefactors driving the productivity enhancements on whichtheir present and future prosperity is built. Acompetitiveness supporting economic environment canhelp national economies to weather business cycledownturns and ensure that the mechanisms enabling solideconomic performance going into the future are in place.

Unless constraints identified in Asgisa and other researchare effectively addressed, the SA economy will continueto grow at less than its potential.


20/23

20

SUPPORTING THE RECOVERY AND ACHIEVINGA MORE LABOUR ABSORPTIVE ECONOMIC

GROWTH PATH1Boost job creation and productivity by shifting resources to labourintensive services improving training programmes and basic educationand lowering the cost of hiring.

Promote faster economic growth with large-scale job creation byimproving South Africas export performance and by promoting and

sustaining investment.Developing new and better business models for parastatals,especially Eskom.

Greater use of public-private sector partnerships

Policies to encourage a recovery should not burden future

generations with large public debt, high inflation rates, and lowgrowth. The Budget in February 2010 should indicate how the fiscaldeficit will gradually be wound down.


21/23

21

SUPPORTING THE RECOVERY AND ACHIEVING A MORE

LABOUR ABSORPTIVE ECONOMIC GROWTH PATH2

Monetary policy needs to be able to keep long-term interest rateslow and the exchange rate more stablewithin the presentinflation targeting and floating exchange rate regime

Financial market regulation must support macroeconomic stability

Make South Africa a preferred destination for foreign directinvestment.

Build a culture of leadership focused on growth, performance,delivery and accountability.


22/23

22

World Bank Ease of doing business, South Africa's country ranking per

category (doing business 2010)

0 20 40 60 80 100 120 140 160

Protecting investors

Getting credit

Doing Business

Dealing with construction permits

Starting a business

Paying taxes

Closing a business

Registering property

Enforcing contracts

Employing workers

Trading across borders

2007

20082009

2010


23/23

23

Forecasts2005 2006 2007 2008 2009 2010

Econo ic ro th - Annua ro th rates (%)

onsu ers endin 6.9 8.3 6.6 2.3 -2.8 2.2

Fixed investment 10.2 13.2 16.3 10.2 4.3 -1.4

Ex orts 8.0 6.0 7.5 1.7 -21.9 3.0

Im orts 10.3 18.9 10.0 2.2 -15.8 7.6

P 5.0 5.3 5.1 3.1 -2.0 2.2

Ba anceofPayments

urrent Account (R'bn) -62.2 -110.2 -146.1 -169.2 -98.5 -112.6

As % of d -4.0 -6.3 -7.3 -7.4 -4.2 -4.4

Interest rates - ear-end rates3-month JIBAR 7.2 9.3 11.4 11.5 7.3 7.5

Prime 10.5 12.5 14.5 15.0 10.5 10.5

Lon bond 7.4 7.8 8.4 7.3 8.8 9.5

Exchan e rates - Annua avera es

Rand/US$ 6.38 6.78 7.06 8.26 8.37 7.87

Rand/Euro 7.93 8.51 9.71 12.13 11.83 11.77

Yen/Rand 17.27 17.15 16.67 12.42 10.93 12.07

Inflation - Annual avera es

Ne CPI 2.1 3.2 6.1 9.9 7.1 5.7

CPIX 3.9 4.6 6.5 11.3

The Economic Outlook for 2010 [EDocFind.com]

Documents

Transcript of The Economic Outlook for 2010 [EDocFind.com]