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MTBPS: Right mix, right time Goolam Ballim Financial Markets Economist Economics Division Presentation outline – Timing – Policy mix Synchronised slowdown GDP, annual percent change 7 Excluding China & India, Dev. country GDP is likely to be below 2.5% in 2002 6 Developing countries 5 4 3 2 World South Africa USA 1 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Room for fiscal stimulus General government fiscal balance, % of GDP 2 0 -2 United States Advanced economies* -4 -6 South Africa Developing countries -8 -10 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 * United States, European Union & Japan Global disinflation % % 12 60 10 50 8 40 South Africa 6 4 2 USA Developing countries - right scale Advanced economies* 0 30 20 10 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 * United States, European Union & Japan Global monetary easing Central bank rates, % per annum 11 Sept 20 18 16 14 12 South Africa 10 8 United States 6 4 United Kingdom EMU 2 Japan 0 1999 2000 2001 Policy mix Policy mix – Major drivers of growth: 1) private sector & government capital spending; Capital formation Net capital formation by organisation 1991 to 2000 Rand millions, nominal values 200000 150000 100000 50000 0 -50000 General government Public corporations Private business enterprises Real gross fixed capital formation Quarter-on-quarter percentage change Seasonally adjusted at annual rate 30 20 Private sector 10 0 Total -10 -20 -30 1996 1997 1998 1999 2000 2001 Policy mix – Major drivers of growth: 1) private sector & government capital spending; 2) declining interest rates; • SARB to lower rates further SA likely to sustain disinflationary trend • Supported by: • 1. Slow growth in nominal labour costs, due to moderate wage increases and brisk productivity growth • • 2. Continued liberalisation of SA economy Percentage change year on year 25 20 Prime lending rate 15 10 5 CPIX 3-6% inflation target 0 3. Excess capacity over aggregate demand 1998 1999 2000 2001 2002 Policy mix – Major drivers of growth: 1) private sector & government capital spending; 2) declining interest rates; 3) declining tax rates; Tax burden General government tax revenue, (% of GDP) – Easing tax burden over the coming years, particularly for individuals 27.0 26.0 25.0 24.0 23.0 22.0 21.0 1996 1997 1998 1999 2000 2001 Policy mix – Major drivers of growth: 1) private sector & government capital spending; 2) declining interest rates; 3) declining tax rates; 4) consistent export drive and export diversification; GDP & GDE Quarterly change, seasonally adjusted and annualised 10 5 0 -5 -10 GDP GDE -15 1997 1998 1999 2000 2001 SA’s declining dependence on commodities amid increased exports Resources and net gold exports as a percentage of total exports 50 Exports to GDP Resources exports Net gold exports 45 40 35 30 25 20 15 10 5 1996 1997 1998 1999 2000 2001 Policy mix – Major drivers of growth: 1) private sector & government capital spending; 2) declining interest rates - long- and short-term rates; 3) declining tax rates; 4) consistent export drive and export diversification; 5) macroeconomic stabilisation and policy credibility. Policy mix – Major drivers of growth: 1) private sector & government capital spending; 2) declining interest rates - long- and short-term rates; 3) declining tax rates; 4) consistent export drive and export diversification; 5) macroeconomic stabilisation and policy credibility. – Low dependency on FDI reduces the probability of severe economic slowdown. FDI Stocks $ billion 1400 Africa 1200 Latin America & Caribbean 1000 Asia & Pacific 800 South Africa 600 400 200 0 1980 1985 1990 1995 1999 2000 The end [email protected] www.ed.standardbank.co.za Economics Division