Download General

OUTLOOK FOR THE SA ECONOMY
IN THE CURRENT GLOBAL
ENVIRONMENT
July 2010
SABITA
Rob Jeffrey
Managing Director
ECONOMETRIX
OVERVIEW

Global economic outlook

Domestic economic outlook

Significant trends affecting policy

China and Africa

Economic trends and forecasts

Conclusion
INTERNATIONAL TRENDS
ECONOMETRIX
THE GLOBAL ECONOMY
Premier of China
Unsustainable

low
savings
and
consumption
Excessive expansion of financial institutions

Lack of self discipline

Failure of supervision and regulation

high
PRIVATE EXCESS CREDIT AND
BORROWING
Household debt as a %
of disposable income
140
85
130
80
USA
75
SA
70
110
65
100
60
90
55
80
50
96 97 98 99
00 01 02 03 04 05 06
07 08 09
ECONOMETRIX
SA %
U S (% )
120
GLOBAL IMBALANCE
Current Account Balances, $bn
800
600
Emerging economies
$bn
400
200
0
-200
Developed economies
-400
-600
96
Source : IMF
97
98
99
00
01
02
03
04
05
06 07
ECONOMETRIX
08
09
INEQUALITY AND GREED
Executive Pay * Relative to Average
Wages in the US
320
280
240
200
* Includes salary, bonuses, long-term bonus payments and stock-option grants
Based on the three highest-paid officers in the 50 largest firms of the S&P 500 in
1940, 1960 and 1990
160
120
80
40
#
0
36
42
48
54
60
66
72
78
84 90
ECONOMETRIX
ECONOMETRIX
Source : The Economist
96
02
# estimates
LOOSENING MONETARY POLICY
LEADS TO ASSET INFLATION
Inflation in asset prices, not goods prices
Commodity Price Index : $ Terms
First equities, then housing, finally commodities


350
In d e x 2 0 0 0 = 1 0 0
300
250
Metals
Non food ag
Food
200
150
100
50
94 95 96 97 98 99 00 01 02 03 04 05
06 07 08 09 10
ECONOMETRIX
SLUMP AND RECOVERY
Industrial Production Growth
10
5
G r o w th %
0
-5
-10
-15
-20
Germany
Japan
UK
US
-25
-30
94 95 96 97 98 99 00 01 02 03 04 ECONOMETRIX
05 06 07 08 09 10
REQUIRED DOMESTIC &
INTERNATIONAL POLICY SHIFTS

Major realignment of exchange rates

Cultural changes


Lower consumption higher saving in West

Higher consumption lower saving in East
Curbing profligate politicians dependent on:
•

Pet projects and populism for power
Debt levels need to be reduced
•
Past excess debt and current stimulatory debt
APPREHENSION REGARDING
SUSTAINABILITY OF UPSWING

Traditionally, rallies following severe bear markets have averaged
70%, S & P up 83% already since March 2009

China tightening up on lending to slow speculation


•
Could be a precursor to global rise in interest rates?
•
Could be a precursor to slowdown in Chinese economy
Obama acting to prevent banks from speculating with their own
money
•
Interference in market system
•
Unknown impacts
Concerns with Greek debt default possibility
•
Fear of impact on Euro integrity from contagion
•
Increased fiscal prudence to slow European recovery
SPECTRE OF RISING WORLD DEBT
 How do governments in advanced economies extricate themselves from rising
debt levels? Greece now, who’s next?
 Hope that sustained growth will eventually generate revenues to rein in
government debt
Government Gross Debt in Advanced Economies as % of
GDP
100
90
%
80
70
60
50
40
Source : Financial Times
ECONOMETRIX
GLOBAL RECESSION: V-SHAPE OR W-SHAPE?
Massive stimulus is having effect
Huge build up of cash balances
Risk of unsustainable rally in asset prices, commodity prices & economic activity
US Monetary Base
2500
Which Scenario for Global Economy ?
2000
or
$Bn
1500
1000
W Shape
500
0
V Shape
1396 97 98 99 00 01 02 03 04 05 06 07 08 09
95
Eta Shape
ECONOMETRIX
SOUTH AFRICAN ECONOMIC
TRENDS
ECONOMETRIX
THE SOUTH AFRICAN ECONOMY
Unsustainable low savings and high consumption

Excessive imports insufficient exports

EXCESSIVE CONSUMPTION
Manufacturing Production
vs Retail Sales
150
In d e x 2 0 0 4 = 1 0 0
140
130
120
110
Manufacturing
100
Retail New Revised
90
04
05
06
07
ECONOMETRIX
08
09
EXCESSIVE IMPORTS
R m ( c u r r e n t p r ic e s )
Current Account vs Capital Inflows
200000
100000
0
-100000
-200000
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
ECONOMETRIX
Balance on current account
Foreign Investment Net capital inflows
Public debt as % of GDP
Public Debt as % of GDP
50
P e r c e n ta g e
45
40
35
30
25
20
91
93
94/95
96/97
98/99
00/01
02/03
04/05
06/07
08/09
ECONOMETRIX
Actual
2010 Budget
10/11
12/13
Gross general government debt as % of GDP
Gross General Government Debt as % of GDP
Japan
Italy
Greece
France
Portugal
Germany
US
Spain
1999-2008
2011-Forecast
UK
Ireland
South Africa
Source : Financial Times
0
50
100
ECONOMETRIX
150
200
250
BALANCED SECTORAL GROWTH IN SA
POLICY REQUIREMENTS

Create environment to increase domestic and
foreign investment in manufacturing & mining sectors

Increase investment in export orientated mining,
processing & manufacturing industries

Increase
industries
investment
in
import
replacement
CRITICAL FACTORS AFFECTING
FUTURE SOUTH AFRICAN
ECONOMIC
GROWTH
ECONOMETRIX
The age of globalisation
y e a r -o n -y e a r G r o w th (% )
The Age of Globalisation
World GDP vs SA GDP
8
6
4
2
0
-2
-4
61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13
World GDP (%)
(forecast) ECONOMETRIX
South Africa GDP (%)
(forecast)
GLOBALISATION & GROWTH

Irreversible trend

Prices will be influenced by world pricing trends

Long term costs follow international costs

Environmental issues will grow

Domestic & foreign investment are essential

Technological trends will influence development

Intervention and protectionism are dangers
ECONOMETRIX
GLOBAL SUCCESS REQUIREMENTS

Growing influence of market forces and capital
movements
•
•
•
•

Critical size often means
•
•

Efficiency must be measured in global terms.
Critical mass is important in the global market
High quality required to be competitive
Important to offer new technologies
A dominant local player
Producing for export
Government should foster an environment for global
success
ECONOMETRIX
FORECASTS OF SA
ELECTRICITY GENERATING
CAPACITY REQUIREMENTS
ECONOMETRIX
SOURCES OF ELECTRICITY
ECONOMETRIX
ENVIRONMENTAL & OTHER TRENDS
Market share of fossil fuels will decline & the share supplied by
sustainable clean electricity will grow
•
Share of oil from traditional sources will decline but oil from
alternative sources such as tar sands & coal will increase
•
The cost of electricity will increase as the true environmental costs
are factored in to cost structures
•
The cost of alternative sources of electricity will reduce & they will
become more competitive
•
Alternative electricity sources (such as solar, wind & wave) will
continue to have limited large-scale viability
•
Coal and nuclear power currently only technologies available to
offer large-scale electricity source for global economy.
•
ENERGY CONSUMPTION AND INCOME
ECONOMETRIX
SECTORAL ELECTRICITY INTENSITY
Electricity intensity
0.6
0.5
Mining
Manufac
Agric
Resid
Transp
Comm
kWh / Rand
0.4
0.3
0.2
0.1
0.0
1980
ECONOMETRIX
1984
1988
1992
1996
2000
2004
2008
SECTORAL ELECTRICITY INTENSITY
SA electricity intensity
0.24
0.22
kWh / rand
0.20
0.18
0.16
0.14
0.12
0.10
1973
ECONOMETRIX
1978
1983
1988
1993
1998
2003
2008
LONG TERM ECONOMIC GROWTH
OBJECTIVES
Assumed Compound Growth Of Electricity
Sales
Electricity Growth For Agriculture (%Pa)
Electricity Growth For Mining (%Pa)
Electricity Growth For Industry (%Pa)
Electricity Growth For Services (%Pa)
Electricity Growth For Residential(%Pa)
Total
Associated GDP Growth
% per
annum
1.5
2.1
3.2
3.0
4.1
3.0
% per
annum
Agriculture
0.9
Mining
0.3
Industry
3.1
Services
4.4
Total
3.9
Balance of payments
Associated Real Exports
3.1
Associated Real Imports
6.1
Employment
*Associated Employment Index
* = Non Agricultural Sector
ECONOMETRIX
4.4
ESKOM FORECAST CAPACITY
ECONOMETRIX
Electricity Units Consumed
10
G ro w th %
5
0
-5
-10
-15
97 98 99
00 01 02 03 04 05 06
07 08 09 10
ECONOMETRIX
THE CHINDIA FACTOR
SUBSTANTIAL IMPACT ON
AFRICA AND SA
ECONOMETRIX
CHINA FUTURE GIANT
ECONOMETRIX
THE CHINA FACTOR
The long term objective
 Plays a long game (Hong Kong)
 Has 1,3 billion people
 Requires commodities & markets
 Unorthodox business practice

ECONOMETRIX
ECONOMETRIX
LONG TERM DEMAND TREND
World crude steel production
2250
2007-2030
2000
1900-2006
1750
Total = 38 Bt*
Total = 39 Bt
1500
1250
1000
750
500
250
0
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
ECONOMETRIX
•At a hypothetical world average growth rate of 2% p.a
. Source of data: IISI
Slide 13
2020
2030
AFRICA AND CHINA
Africa produces more than 60
minerals
 Africa hosts 30% world’s mineral
resources
 Africa’s market share of world mineral
production <10%

ECONOMETRIX
ECONOMIC TRENDS AND
FORECASTS
ECONOMETRIX
Forecasts for World Growth
Revised Upwards
•
Assume economic recovery will be sustained
Revisions of IMF Forecasts for 2010
World Output
Sub-Saharan Africa
South Africa
Sep 08
4.2
6.5
4.2
Feb 09
3.0
5.0
3.0
Apr 09
1.9
3.8
1.9
Jul 09
2.5
4.1
2.3
Oct 09
3.1
4.1
1.7
Latest IMF Forecast Growth in GDP
(%)
2009
2010
World
-0.6
4.2
Advanced economies
-3.2
2.3
China
8.7
10.0
Sub-Saharan Africa
2.1
4.7
South Africa
-1.8
2.6
IMF, World Economic Outlook Database, April 2010
ECONOMETRIX
Jan 10
3.9
4.3
na
2011
4.3
2.4
9.9
5.9
3.6
Apr 10
4.2
4.7
2.6
IMF Forecasts for Growth of Sub-Saharan Countries
2010
2011
Angola
Nigeria
Mozambique
Botswana
Tanzania
Malawi
Zambia
Uganda
7.1
7.0
6.5
6.3
6.2
6.0
5.8
5.6
8.3
7.3
7.5
5.1
6.7
6.3
6.0
6.4
Democratic Republic of Congo
5.4
7.0
Ghana
Kenya
Mauritius
Senegal
Côte d'Ivoire
Lesotho
South Africa
Zimbabwe
Namibia
Swaziland
4.5
4.1
4.1
3.4
3.0
3.0
2.6
2.2
1.7
1.1
Source: IMF WEO, Apr 10
20.1
5.8
4.7
4.1
4.0
2.8
3.6
0.0
2.2
ECONOMETRIX
2.5
Rand Remains Vulnerable





Still benefiting from carry trade & low money supply
growth
However, weakening relative to other emerging markets
Fears of left-wing shift (bluster meant to mask lack of
service delivery)
Concerns with lack of leadership (presidency) of
country & of economy (who is in charge of economic
policy?)
Growing underperformance of SA Economy
ECONOMETRIX
Net Foreign Reserves ($bn) *
Emerging Markets
07 June 2010
China
Russia
Taiwan
South Korea
Hong Kong
India
Brazil
Singapore
Thailand
Mexico
Malaysia
Poland
Indonesia
Turkey
Israel
Argentina
Hungary
Philippines
Czech Republic
South Africa **
Egypt
Chile
Colombia
Venezuela
* Excluding gold, except Singapore and China
Source : The Economist
**Source: SARB
2447.1
435.6
357.6
278.9
259.2
256.4
242.6
203.4
141.1
101.3
94.0
84.7
75.8
69.5
62.1
45.5
45.5
40.7
38.8
36.7
32.5
25.5
24.9
17.3
ECONOMETRIX
Forecast : Rand Exchange Rate
14
12
Rand
10
R/Euro
8
6
R/$
4
99
00 01 02 03 04 05 06 07 ECONOMETRIX
08 09 10 11
Estimated Principal Areas of Government Expenditure (% Growth)
2009/10-2012/13
General Public Services
2.4
Defence
6.3
Public Order & Safety
8.2
Economic affairs
-2.1
Housing & Community Amenities
11.6
Health
7.1
Education
8.4
Social protection (Welfare)
9.5
Interest
21.8
Total
ECONOMETRIX
8.2
Forecast :Private Consumption
Expenditure
10
8
G ro w th %
6
4
2
0
-2
-4
-6
00
01
02
03
04
05
06
07
08 ECONOMETRIX
09 10 11
C o n s t a n t '2 0 0 5 P r ic e s ( R 'm )
Building Plans Passed :
Non-Residential vs Residential
3500
3000
2500
2000
1500
Residential
1000
Non-Residential
500
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
ECONOMETRIX
Growth in Fixed Investment vs
Investment in Machinery
30
G ro w th %
20
Fixed
Investment
10
0
-10
Machinery & Other
Equipment
-20
-30
94 95 96 97 98 99 00 01 02 03 04 ECONOMETRIX
05 06 07 08 09
Gross Domestic Fixed Investment vs
Investment in Construction Works
In d e x 1 9 9 5 = 1 0 0
600
500
Construction
Works
400
300
200
Fixed Investment
100
0
95 96 97 98 99 00 01 02 03 04 ECONOMETRIX
05 06 07 08 09
Gross Domestic Fixed Investment vs
Investment by Electricty, Gas & Water
In d e x 1 9 9 5 = 1 0 0
500
400
Electricity, Gas & Water
300
200
Fixed Investment
100
0
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
ECONOMETRIX
Forecast: CPI vs CPIX
14
12
10
CPIX
8
%
6
4
2
Inflation Target
0
-2
-4
CPI
00 01 02 03 04 05 06 07 08 09 10 11 12
ECONOMETRIX
Forecast: Prime Overdraft Rate
25
23
21
%
19
17
15
13
11
9
97 98 99 00 01 02 03 04 05 06ECONOMETRIX
07 08 09 10 11
The Decline in Interest Rates Has Run its Course
Forecast: Prime Overdraft Rate
26
24
22
%
20
18
16
14
12
10
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
ECONOMETRIX
SA Economic Growth Forecasts (Growth %)
Gross Domestic Product
Year End (Q4)
2009
-1.8
-1.6
2010
3.1
3.7
2011
3.5
3.7
2012
2.6
2.9
2013
4.5
4.8
Gross Domestic Expenditure
-1.8
4.4
3.6
2.5
4.1
Year End (Q4)
-1.2
5.4
3.6
2.7
4.8
Private Consumption
Year End (Q4)
-3.1
-2.9
1.9
3.3
3.1
3.0
2.3
2.3
3.3
3.9
Fixed Investment
Year End (Q4)
2.4
-1.3
2.0
3.1
4.8
5.7
3.9
3.9
5.3
6.5
Government Expenditure
Year End (Q4)
4.7
4.5
3.9
4.1
4.0
3.8
3.8
3.8
3.7
3.7
-4.2
-3.5
Current A/C Balance As % of
GDP
ECONOMETRIX
-4.0
-3.2
-4.2
Difference Between Growth in SA Economy & World
2
Forecasts
1
0
%
-1
-2
-3
-4
-5
2001
2002
2003
2004
World
2005
2006
2007
2008
Emerging & Developing
2009
2010
ECONOMETRIX
Africa
2011
2012
Underperformance of SA Economy
Increasing
Lack of competitiveness & high import dependence due to:

Skills & education deficiency

Wages high relative to productivity

Lack of sufficient market size & economies of scale

Economic concentration in hands of “Golden Triangle”

Lack of entrepreneurship

Stifling regulatory environment
ECONOMETRIX
GLOBAL ECONOMY
CONCLUSION



Current slide arrested
Second economic slowdown
Slower growth
Correction of imbalances
 Reduction of debt
 Cultural changes take time




Time span of recovery: 3 to 8 years
South Africa will be affected
South Africa cushioned in short to medium term
ECONOMETRIX