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A view of the South African
economy in the global crisis
Chris Loewald
National Treasury
15 May 2009
1
A sharp collapse in economic activity, driven by diverse causes
•
Defaulting assets = no credit extension to other banks, to non-financial firms,
and households (interest rates near zero, e.g. US 0.25%).
•
Sharply reduced borrowing by consumers and firms = falling new orders and
demand (production decline of 13%yoy in US and 18% in Eurozone)
•
Declining production = reductions in employment and working hours (US rate to
8.4%).
•
Falling commodity prices reverse income gains to many exporters (commodity
•
prices down by 58% on average from peak in April 2008).
Driven by structural imbalances (US & China),
Lending & capital flows to developing world curtailed (US$165 billion in 2009
regulatory failures, overly loose monetary policy, and
compared to $929 billion
in 2007). rise in household debt.
an unparalleled
… followed by trade & production collapse globally.
…severely affecting global economy as trade volumes collapse
Global trade volumes …
4Q08
1Q09
200
South Africa
20.69
-27.96
180
China
4.33
-19.72
Brazil
6.89
-19.42
Korea
-9.88
-24.87
Malaysia
-21.6
-25.0
Exports (US$, % yoy)
160
140
120
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
100
…and shipping cost
14000
12000
10000
8000
6000
4000
2000
9
20
0
8
20
0
7
20
0
6
20
0
5
20
0
4
20
0
3
20
0
2
20
0
1
20
0
20
0
3
0
0
… and manufacturers reduce inventories under the pressure of
weak demand
Purchasing managers indices
Manufacturing
4Q08
1Q09
South Africa *
-6.9
-13.7
Brazil
-6.27
-14.61
60
Korea
-12.12
-16.39
55
Steel Production
4Q08
1Q09
65
Eurozone PMI
US PMI
China PMI
Neutral Level
50
45
40
35
9
r-0
Ap
09
Ja
n-
8
O
ct
-0
8
Ju
l-0
r-0
8
30
Ap
-59.11
08
-58.97
Ja
n-
HSBC global steel
index
… and while policy responses have been vigorous, they cannot
prevent contraction
Output gap
A
United
States
-8.8
Japan
-9.7
Change in
fiscal
balance
SA
2007 - 2010
US
B
UK
Fiscal
response
ration 20007 2010
Eurozone
-9.0
Japan
-5.9
China
C = (B/A)
1.02
0.61
United
Kingdom
-7.0
Australia
-7.7
1.10
Canada
-7.3
-7.6
1.04
Euro area
-8.2
-6.3
0.77
South Africa
-4.7
-3.9
World
0.82
Change since Apr-08
(basis pts)
8.5
-300
0.25
-200
0.5
-475
1.25
-275
0.1
-40
5.31
-216
3.0
-425
GDP growth (%)
2008
2009
2010
3.2
-1.3
1.9
0.8
-3.8
0.0
United States
1.1
-2.8
0.0
Eurozone
0.9
-4.2
0.4
Japan
-0.7
-6.2
0.5
6.1
1.6
4.0
Advanced economies
Developing countries and
emerging markets
Source: IMF WEO, April 2009
Policy rate (%)
Africa in crisis… a very good decade at risk
► DRC, 100 000 jobs lost in smelter closures. GDP to contract
Channels of influence:
Trade
Capital flows
Remittances
Public finance
Private sector credit
by 1.5 per cent in 2009.
► 42 000 jobs in Lesotho’s textile sector.
► Copper = 70% of Zambia’s exports & price fall from US$9
000mt to US$3 000mt.
► BLNS depend on SACU revenue for 30% to 60% of
government revenue.
► R6.8 billion customs shortfall between Budget 2008
forecast and estimated collection for 2008.
► Export revenues losses (Botswana to decline by 50%, and
2009 budget deficit to 13% of GDP).
Budget Balance as % of GDP
Botswana
Lesotho
Namibia
Swaziland
2007/08
1.1%
5.9%
3.3%
3.7%
2008'09*
-0.4%
-3.0%
-0.4%
-1.4%
2009/10
-13.0%
-8.0%
-5.6%
-8.0%
* projected outturn
As global economy slows, so too does South Africa
South Africa: real GDP growth
8
7
6
%q/q, saar
5
4
3
2
1
0
-1
-2
-3
7
9
19
7
8
9
19
9
9
19
0
0
20
1
0
20
02
0
2
03
0
2
04
0
2
05
0
2
06
0
2
07
0
2
08
0
2
… driven in part by a need for households to lower debt levels
Ratio of household debt to disposable income
90
Household debt ratio
Per cent of disposable income
80
70
60
50
40
8
08
20
06
20
04
20
02
20
00
20
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
19
80
30
… and corresponding adjustment to production
119
Production
indicators
Mining Production
114
2008
109
Percentage
Change (Y-o-Y)
104
Electricity
Production*
-1.6
-1.8
Mining*
99
-3.9
-6.7
-12.3
-18.4
-8.7
-12.0
6.5
4.4
5.7
3.1
-6.0
-16.6
-2.7
2.2
-39.1
-51.1
6.0
0.8
-24.5
105
Petrochemicals
14.9
10.6
Manuf100capacity utilisation (%)
84.8
85.2
47.13
46.97
45.10
35.97
90
Inventories
53.8
51.8
47.7
46.2
85
New orders
47.2
42.7
38.7
32.6
20
06
20
05
20
04
20
20
20
20
*Figures up to February 2009.
**expansion>50<contraction
20
03
02
01
00
95
PMI (index,
sa)**
07
Index: 2005=100
Motor110
vehicles
09
Manufacturing production
20
Iron &115Steel
08
20
08
Manufacturing*
120
20
20
07
20
06
20
05
20
04
20
03
20
02
20
00
Coal
20
01
Platinum
89
20
09
Q3
Index: 2000=100
Q2
Gold 94
9
2009
Q4 Mining
Q1
production falls to
Output declines
unprecedented
low
-5.1
-11.4
point to further
-4.0
-13.3
contraction in
-14.8
-5.3
GDP growth in
the first quarter
3.7
7.2
of 2009.
0.4
-6.6
-37.6
Manufacturing production at
-2.2
-7.8
2005 levels
83.0
n/a
… putting long-run employment gains at increasing risk as exports
and other sectors weaken
Total employment (Thousands, March QLFS)
2001
2002
2003
2004
2005
2006
2007
2008
12 494
11 995
11 666
11 823
12 503
13 237
13 326
13 623
Formal sector employment by industry
275
250
Construction
Index (2001=100)
225
200
175
Finance
150
Trade
125
Manufacturing
100
75
Mining
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
50
2009
13 636
Economic shock to a more resilient SA economy
•
Domestic economic landscape changing
– Household expenditure 61% of GDP in 2008 vs long term average of 62%
– Public sector expenditure 28% of GDP in 2008 vs long term average of 14%
– Fixed capital formation 23% of GDP in 2008 vs long term average of 16%
•
Economic slowdown following four years of above-potential growth
•
Fiscal policy has become decidedly counter-cyclical, and remains
systemically sound
•
Fixed capital formation benefits manufacturing, construction, electricity and
transport and communications sectors
•
11
Key objective of government is set on creating long term growth potential.
With fiscal policy space to provide counter-cyclical stimulus
Fiscal balances
4
3
Annual
average -0.8%
Per cent of GDP
2
1
0
-1
-2
-3
-4
Conventional fiscal balance
12
20
10
/11
f
20
08
/09
20
06
/07
20
04
/05
20
02
/03
20
00
/01
19
98
/99
19
96
/97
-5
Primary fiscal balance
… and support longer-term public infrastructure development
Public sector borrowing requirement
Parastatal consolidated capex and funding
0
500 000
Capex
Borrowings
Internal/ Own generated
Surplus/ Shortfall
-1
400 000
-2
R millions
-4
-5
100 000
13
tal
To
2
1/1
20
1
20
1
0/1
1
1f
0/1
20
1
20
08
/09
20
06
/07
20
04
/05
20
02
/03
20
00
/01
0
19
98
/99
19
96
/97
-8
0
-7
Public sector borrowing requirement
(incl. parastatals)
200 000
9/1
-6
300 000
20
0
% of GDP
-3
… and offsetting decelerating private sector investment
Relative rise in real fixed investment spending
Weighted growth rates
360
General
gov
SOEs
Private
business
2005
0.1
1.2
8.9
2006
2.4
1.7
9.2
260
2007
2.9
4.1
9.3
240
2008
1.5
4.1
4.7
340
Public corporations
320
Private business enterprises
300
General government
Index: 2000=100
280
220
200
Investment ratio increased to
24.2% of GDP at the end of 2008.
180
160
140
Private sector contribution to
investment growth has fallen
sharply as government and public
sector share has risen.
120
100
80
00
20
14
01
20
0
20
2
03
20
20
04
20
05
06
20
07
20
08
20
…which sustains the large current account deficit and raises
macroeconomic risks
% of GDP
2005
2006
2007
2008
2009
Current Account
-4.0
-6.3
-7.3
-7.4
-6.2
Main Budget Balance
-0.5
0.3
0.7
-0.6
-3.9
Public Sector Borrowing
Requirement
-0.4Savings
-0.3 and-0.6
3.9
7.5
investment
ratios
26
24
Gross fixed capital formation
Gross saving
per cent of GDP
22
20
18
16
14
12
15
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
19
95
10
… raised further by global risk aversion and uncertain portfolio
flows… short-term financing a concern
Foreign portfolio flows to South Africa
7
16
08
20
07
20
06
0
20
12
05
5
20
11
04
00 001 002 003 004 005 006 007 008 009
20
2
2
2
2
2
2
2
2
2
10
00
-80
Net foreign purchases of equities
Net foreign purchases of bonds
USD/ZAR (RHS)
10
20
-40
15
20
-20
03
9
20
20
0
US$ billion
8
25
USD/ZAR, Inverted
20
-60
30
02
6
20
60
35
01
5
20
80
40
R billion
Foreign currency holdings of SA banks
… but not over a longer time horizon… measures of capacity to
finance foreign & short term debt are sound
South Africa: external debt to exports
Short term debt to FX reserves
120
180
External debt-to-exports ratio
153
160
Per cent of reserves
Per cent of exports
110
100
90
80
147
143
138
140
120
100
80
70
66
57
60
56
54
40
70
20
60
Comparative external debt to exports (2008)
160
External debt-to-exports ratio
140
Per cent
120
100
80
60
40
20
nd
ila
Th
a
ic
o
ex
M
ub
lic
a
R
ep
ze
ch
C
So
ut
h
Af
ric
a
si
us
R
Po
la
a
Ar
ge
nt
in
ke
y
Tu
r
17
nd
0
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
20
99
19
19
98
0
Feeling for the stones in South Africa
•
Risks to South Africa extremely high due to global fragility… need to maintain growth
and financing for the current account deficit.
•
Deteriorating fiscal position heightens risks… higher public debt and lower GDP growth
will drive up the cost of borrowing and the deficit.
•
Fiscal adjustment and monetary stimulus to support growth.
•
And microeconomic reforms & new approaches for growth & productivity.
And big issues remain…
The labour market: how to maintain people in jobs without
impeding adjustment?
Exports: how to promote competitiveness and lower high
costs of inputs for the economic recovery?
Public infrastructure: how to ensure we can finance our
physical infrastructure sustainably?
18