Download Perspectives on key economic issues

Perspectives on key economic issues
Presentation to the Parliamentary Portfolio
Committee on Finance by the South African
Reserve Bank
April 2013
Outline
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Context: The global and domestic economy in a nutshell
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Selected issues
n Unsecured lending
n The South African balance of payments
n Monetary policy
Context: The global and domestic economy in a nutshell
Continued sluggishness in the world economy:
Global real GDP growth slackened in the final quarter of
2012 as advanced economies registered a contraction
2,5%
Recent global developments: a mixed bag
n
Events in Cyprus have again undermined confidence and cohesion in
Europe
n
Aggressive expansionary policies adopted in Japan seem credible enough
to have resulted in expectations of somewhat higher inflation expectations
and improved growth
n
US fiscal dilemmas have been partly resolved but mostly postponed
n
Sub-Saharan African growth is buoyed by favourable prices of most export
commodities, infrastructure spending, and new production facilities
becoming operational
n
BRICS growth has slowed somewhat, particularly in Brazil, but remains
brisk when compared with the advanced economies
Global inflation pressures remain muted, especially in the
advanced economies
South Africa: Moderately better growth in the final quarter
of 2012 as secondary sector picked up while primary
sector contracted further
2,1%
Growth in all the final domestic demand components
slackened in the final quarter
I : 4,3%
G : -0,7%
C : 2,4%
Selected issues: Unsecured lending
Banks’ general loans extended to the household sector
rose strongly over the past three years
D 19
However, there are tentative signs of moderation most
recently, and the intention of some key lenders active in the
market is to aim for slower growth in this business
With unsecured lending constituting less than 15% of total
lending to households, the household debt ratio inched lower in
the final quarter of 2012
Selected issues: South Africa’s balance of payments
Inflow of savings from ROW on the back of macro stability &
stronger economic growth
Balance on the financial account of the balance of payments
10
Percentage of GDP
Surplus
Financial sanctions
Post-democratic normalisation
8
6
4
2
0
-2
-4
-6
Deficit
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
Movement from current-account surpluses in the sanctions
era to sizeable deficits in recent years
Balance on current account
8
Percentage of GDP
Surplus
6
4
2
0
-2
-4
-6
Deficit
-8
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
In recent years, widening current-account deficits reflect weak
export volumes, largely due to structural impediments, while
import volumes surged
Volume of South Africa's imports and exports
280
Indices, 1994=100
Imports
240
200
160
Exports
120
80
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Import volumes rose strongly, largely driven by rising domestic
expenditure
Real domestic expenditure components and imports
280
Indices: 1994=100
Imports
240
200
160
Household consumption and capital formation
120
80
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
And supported by growth in remuneration between 2008
and 2010
Digesting the current-account deficit
A significant part of the deficit is attributable to imports of capital goods
that are needed to address infrastructure backlogs, modernise the
production structure and facilitate higher exports in future
Real fixed capital formation by government and public corporations
160,000
Rm, 2005 prices
140,000
120,000
100,000
80,000
60,000
40,000
20,000
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Reflected in part by rand weakness
The South African rand has a floating exchange rate, so that deficits or
surpluses deemed unsustainable by market participants result in
exchange rate adjustment; there is an inbuilt shock absorber at play
However, large exchange rate movements may have implications for
inflation and necessitate policy adjustment
Exchange rate trends vary across emerging markets and
commodity producers
South Africa has also become more robust in the face of
possible external shocks through building up the country’s
stock of international reserve assets
Selected issues: Monetary policy
Monetary policy has remained expansionary, with the nominal
policy rate at its lowest level in more than three decades to
support the economic recovery
Inflation is inside the target range, and a trimmed mean
measure of underlying inflation has been added
Headline CPI
Trimmed mean
Market expectations are for short-term interest rates to
increase moderately in 2014
This proxy for expected inflation has hovered slightly
above 6 per cent for most of the past two years
March MPC meeting: Inflation outlook has deteriorated slightly due to a more
depreciated exchange rate and higher petrol prices, but is still projected to be
within the target range over the effective policy time horizon
14
Targeted inflation
Per cent
Actual
Forecast
12
10
2013Q3
6,3
8
6
2014Q4
5,2
4
Target range
2
50% Confidence interval
0
2006
75% Confidence interval
2007
Source: SARB core model
2008
2009
2010
2011
2012
2013
2014
An ongoing concern of the MPC is that administered price
inflation remains well above the inflation target range; greater
moderation and discipline are needed
Conclusion
n
n
n
n
n
The global picture is one of sluggish growth, with the advanced economies
registering a slight contraction in the final quarter of 2012
Domestic growth continued to be sluggish but less so than in the third
quarter
Capital inflows in various forms have been sufficient to fully finance the
deficit on the current account
Inflation remains inside the target range, and measures of underlying
inflation are currently below the headline inflation rate
Monetary policy is mindful of the need to support growth – to this end
South Africa currently has the lowest nominal policy interest rate in 3
decades