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The 2008 MTBPS: an exercise in the art of the possible Jac Laubscher
Group Economist24 October 2008
International financial crisis: financial system
● Systemic risk being addressed
● Tentative signs of stabilisation
● Normalisation will take some time
● Financial system needs to be reformed: beware throwing out the baby with the bath water
● The underlying cause is human failure
International financial crisis: real economy
● Recession on its way
Developed countries: classical recession
Developing and emerging market countries: growth recession
● How severe and how long?
International economic downturn
Source: IMF World Economic Outlook October 2008
%
OECD leading indicator vs. growth
Source : I-Graph
-12
-7
-2
3
8
13
1965 1970 1975 1980 1985 1990 1995 2000 2005
%
OECD leading indicator
GDP Growth
OECD leading indicator vs. commodity prices
Source : I-Graph
-5
-3
-1
1
3
5
7
9
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
%
-40
-20
0
20
40
60
80
100
120%
OECD leading indicatorCommodity prices
Current account (% of GDP)
Source : I-Graph
-8
-6
-4
-2
0
2
4
6
1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
%
Composition of current account
% of GDP 20042008 (H1
annualised)
Trade balance -0.1 -2.1
Net service receipts -0.3 -1.6
Net income receipts -2.0 -3.3
SACU transfers -0.8 -1.1
Current account -3.2 -8.1
Composition of capital inflow (%)
2003 2004 2007 H1 2008
Direct investment
10.9 5.2 17.0 48.5
Portfolio investment
14.8 47.2 45.6 8.3
Other investment
29.3 11.0 24.7 37.5
Unrecorded transactions
45.0 36.5 12.7 5.6
Inflow of capital
Source : I-Graph
-26
-21
-16
-11
-6
-1
4
9
14
2000 2001 2002 2003 2004 2005 2006 2007 2008
R'billion
Rand vs. major currencies
Source : I-Graph
70
90
110
130
150
170
190
210
2001 2002 2003 2004 2005 2006 2007 2008
Index
Rand/Dollar
Rand/Euro
Rand/Pound
R/$ vs. VIX
10
20
30
40
50
60
70
80
2005 2006 2007 2008
Index
5
6
7
8
9
10
11
12R/$
VIX (lhs)
R/$ (rhs)
Source : I-Graph
Reuters headlines: 23 October at 15:00
● Sterling hits multi-year lows
● C. European FX pressured, forint touches new low
● Norway finmin says “crisis pull-out” hit crown
● Brazil’s currency plunges nearly 6%
● Mexican peso loses 4.9% before official open
● Turkish lira weakens as central bank action eyed
● Romanian leu down 2.5% vs euro in volatile trade
● Asian FX plumbs multi-year lows on growth fears
CPIX inflation vs. R/$
Source : I-Graph
3
5
7
9
11
13
2000 2001 2002 2003 2004 2005 2006 2007 2008
Rand
-40
-20
0
20
40
60
80%
CPIX inflation (lhs)
R/$ (rhs)
Have interest rates peaked?
Source : I-Graph
2
4
6
8
10
12
14
16
18
20
22
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
%
Repo rate
CPIX inflation
Household consumption in recession
Source: I-Graph
-40
-30
-20
-10
0
10
20
30
40
50
2001 2002 2003 2004 2005 2006 2007 2008
%
-9
-4
1
6
11
%
Car sales (lhs)
Retail sales (rhs)
Yield on l.t. bonds: SA vs. global
Source : I-Graph
7
8
9
10
11
12
13
14
15
16
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Index
1
3
5
7
9
11
13
Index
SA long term bond yields (lhs)International norm (rhs)
Government debt (% of GDP)
0
5
10
15
20
25
2008/09 2009/10 2010/11 2011/12
Net loan debt Foreign debt
The MTBPS view: two scenarios
● A deep global recession → reduction in international trade → prolonged period of much slower growth in SA → real income and corporate profits under pressure
● Global economic adjustment in medium-term → more balanced growth → benign outcome for SA
● MTBPS is based on second (more optimistic) scenario
● The risk is to the downside
MTBPS macroeconomic projections
2008 2009 2010 2011
GDP growth (%) 3.7 3.0 4.0 4.3
CPI inflation (%) (CPIX 11.6) 6.2 5.3 4.7
Current account (% of GDP) -7.6 -7.8 -8.9 -8.8
Consolidated national government budget
2008/09 2009/10
Feb. budget MTBPS Feb. budget MTBPS
Tax Revenue 642.3 642.3 711.5 699.0
% of GDP 28.1 27.1 28.4 26.9
Non-interest Expenditure
559.9 581.5 630.5 682.2
% of GDP 24.5 24.6 25.2 26.3
Real growth (%) 7.7 6.7 7.5 11.5
Balance 18.5 3.2 16.0 -41.5
% of GDP 0.8 0.1 0.6 -1.6
National budget tax revenue
2008/09 2009/10
Feb. budget MTBPS Feb. budget MTBPS
Total Tax Revenue 642.3 642.3 711.5 699.0
Income & profits 369.8 380.6 409.6 416.3
Payroll & workforce
7.5 7.9 8.2 8.4
Property 14.2 10.3 15.7 11.2
Goods & services 218.6 215.9 241.7 233.5
International trade 31.5 26.9 36.3 29.6
National budget tax revenue (selected items)
2008/09 2009/10
Feb. budget MTBPS Feb. budget MTBPS
Total Tax Revenue 642.3 642.3 711.5 699.0
Companies 156.5 158.9 171.4 168.7
Transfer duties 8.6 6.0 9.5 6.5
VAT 167.0 167.0 185.2 180.3
Fuel levy 26.4 25.5 28.0 26.3
Customs duties 31.1 26.5 35.9 29.2
Borrowing requirement
2007/08 2008/09 2009/10 2010/11 2011/12
General government -17.0 2.6 46.9 38.7 7.5
% of GDP -0.8 0.1 1.8 1.3 0.2
Public sector -5.9 30.4 77.2 91.7 82.4
% of GDP -0.3 1.3 3.0 3.2 2.6