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Economic landscape: How deep is the bottom?
18 November 2008
Danelee van Dyk
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
World growth: outgoing tide
Above 15%
10% - 14.9%
8% - 9.9%
6% - 7.9%%
4% - 5.9%
2% - 3.9%
0% - 1.9%
Less than zero
Insufficient data
Sources: International Monetary Fund
Financial distress aggravates slowdown
Per cent of GDP
0
-1
-2
-3
-4
-5
Slowdowns Slowdowns not
Recessions Recessions not
preceded by
preceded by
preceded by
preceded by
financial stress financial stress financial stress financial stress
Economic slowdowns and recessions preceded by financial distress tend to involve 23 times greater cumulative output losses and tend to endure 2-4 times as long.
Sources: IMF
Ultimately… no true decoupling
Forecast
12
10
Annual per cent
8
6
4
2
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
-2
World
China
Series7
Sources: IMF
Advanced economies
Series5
Series8
Developed economies
Series6
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
12
25
9
18
6
11
3
4
0
-3
-3
-10
-6
-17
-9
1983
-24
1986 1989 1992 1995 1998 2001 2004 2007
OECD leading indicator
CRB commodity price index (RHS)
Sources: IMF, Bloomberg
Per cent year-on-year
Per cent year-on-year
Falling demand vs commodities
Importance of fuel, food and beverages on inflation
Sources: IMF
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
… South Africa not unscathed
R80.2bn
5.5
20000
6
10000
Rand million
0
7
7.5
-10000
-20000
8
8.5
-30000
9
9.5
-40000
10
-50000
10.5
2004
2005
2006
2007
Total net foreign purchases of bonds and equities
Sources: Bloomberg
2008
-R69bn
Dollar-rand exchange rate
Rand (inverted)
6.5
Exposing a potential funding crisis
20000
-20000
10000
-10000
0
-10000
10000
-20000
20000
-30000
30000
-40000
40000
-50000
50000
-60000
60000
1995
1997
Trade balance
Current transfers
Sources: Bloomberg
1999
2001
2003
Net service receipts
Net capital flows (RHS)
2005
2007
Net income receipts
R million
R million
0
Rand weakness conquers global demand falloff?
35
20
24.4%
33
31
per cent of GDP
29
10
27
25
5
23
0
21
19
-5
17
15
1960 1968 1976 1984 1992 2000
Volume of exports
Sources: Bloomberg
Sources: SARS, SARB
-10
Exports to GDP (LHS)
per cent year-on-year
15
2.3%
30%
13%
14.4%
Africa
America
Oceania
2%
7%
18.3%
0% 17%
31%
40.8%
Europe
Asia
Unclassified
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
Economic growth: fading smile?
“Down” cycle
“Up” cycle
9
Per cent
6
3
0
-3
1960
1965
1970
1975
1980
1985
Economic growth
Sources: SARB, Standard Bank Group
2000
1995
1990
Trend
(Economic growth)
Poly.
2005
2010f
Constructive rebalancing
100%
% contribution
80%
60%
40%
20%
0%
2004
2005
2006
Households
Sources: SARB; Standard Bank Group
2007e
Government
2008f
GFCF
2009f
2010f
12
12
9
9
6
6
3
3
0
0
-3
2000
-3
2001
2002
2003
2004
2005
Cumulative interest rate hikes (RHS)
Sources: Stats SA, SARB
2006
2007
2008
Wholesale and retail trade
Percentage points
Per cent q/q s.a.a
GDP growth – interest rate sensitive weakness
12
12
9
9
6
6
3
3
0
0
-3
-3
2000
2001
2002
2003
2004
Cumulative interest rate hikes (RHS)
Sources: Stats SA,SARB
2005
2006
2007
2008
Wholesale and retail trade
Percentage points
Per cent q/q s.a.a
GDP growth – interest rate sensitive weakness
GDP growth – debt-driven spending thrust
12
35
30
9
6
20
15
3
10
0
Percentage points
Per cent q/q s.a.a
25
5
-3
2000
0
2001
2002
2003
Cumulative interest rate hikes (RHS)
Wholesale and retail trade
Sources: Stats SA, Standard Bank Group, SARB
2004
2005
2006
2007
2008
Cumulative household debt increases (RS)
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
Durable goods at forefront of decline
0
1
2
3
4
5
6
7
8
0
Correlation (%)
-20
-40
-60
-80
Durable goods
Sources: Standard Bank Group
Interest rate lag (quarters)
Semi-durable goods
Non-durable goods
Services
60
20
45
17
30
14
15
11
0
8
-15
5
-30
2000 2001 2002 2003 2004 2005 2006 2007 2008
Car sales
House price growth
2
Prime rate
Sources: Naamsa, Standard Bank Group, SARB
Per cent
Per cent year-on-year
Durables first to recover
5 per. Mov. Avg. (Car sales)
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
Fixed investment close to reaching target…
35
30
Per cent
25
20
15
2014
10
5
0
1971
1976
Private sector
Sources: SARB
1981
1986
1991
Public sector
1996
2001
2006
General government
… but downswing next four years?
35
92
6 to 10 year cycles
30
Per cent
25
84
20
80
15
2014
10
76
5
72
0
1971
68
1976
1981
1986
Private sector
General government
Sources: SARB
1991
1996
2001
2006
Public sector
Capacity utilisation
Per cent
88
Strong four to eight year thrust
Mining
Electricity
Petrochemicals
Transport and logistics
Telecoms
Water
Industrial
Sports
Airports and aviation
R116.9bn
R331.8bn
R159.4bn
R92.7bn
R31.4bn
R9.9bn
R27.5bn
R11.2bn
R18.3bn
2008
0
2010
2
2007 estimates
Sources: Engineering News; Standard Bank Group
2012
4
2014
6
2008 estimates
2016
8
2018
2020
10
12
Time frame
2010 small fish in a big pond
Transnet
9%
Stadiums
2%
Gautrain
6%
Eskom
36%
Other
infrastructure
47%
2014
Stadiums
Gautrain
1%
3%
Private sector
51%
Transnet
4%
Sources: SARB
Other
infrastructure
23%
Eskom
18%
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
Food deflation welcome development
year-on-year per cent
100
80
60
40
20
0
-20
-40
2000
2002
World Food Prices (USD)
2004
2006
2008
World Food Prices (ZAR)
Sources: Andrew Levy Wage Publications, Stats SA, Standard Bank Group
Inflation revision: silver lining
16
Forecast
year-on-year per cent
14
12
CPIX
New CPI
Weight
Weight
Commodities
66.2
54.8
Services
33.7
45.8
Food
25.7
14.3
Transport
15.3
18.8
Housing
15.7
20.7
Electricity
3.6
1.7
Other
39.7
44.7
10
8
6
4
2
0
2006
2007
Current CPIX
New CPI
Sources: Stats SA, Standard Bank Group
2008
2009
2010
Reweighting 2008
Current CPIX
Inflation revision: silver lining
18
Forecast
year-on-year per cent
16
14
12
10
8
6
4
2
0
2006
2007
Current CPIX
Current CPIX
Sources: Stats SA, Standard Bank Group
2008
2009
Reweighting 2008
Prime
2010
New CPI
Rand implications for inflation: scenarios
14
Per cent year-on-year
12
10
8
6
4
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Base case
Rand Steady Oil Drop $10
Oil gradual easing Rand weakens 20 cents
Oil gradual easing Rand weakens 50 cents
Sources: Stats SA, SARB, Standard Bank Group
Dec-09
South African Growth Profile
Global
growth
Commodity
prices
Wages
Inflation
Outlook
Investment
buffer
Currency
risks
Local
growth
Interest
sensitive
15
12.3
12
11
9
9.7
6
8.4
3
7.1
0
5.8
Per cent
Inflation driving wage risk
1992 1994 1996 1998 2000 2002 2004 2006 2008
CPI
CPIX
Andrew Levy wage settlement (RHS)
Sources: Andrew Levy Wage Publications, Stats SA, Standard Bank Group
… to double-digit levels
70
% of settlements
60
50
40
30
20
10
0
3% 4.9%
5% 5.9%
6% 6.9%
7% 7.9%
2006
Sources: Andrew Levy Wage Publications
8% 8.9%
2007
9% - 11% - 12% - 13% 10.9% 11.9% 12.9% 13.9%
2008
Metrics
2007
2008
2009
2010
2011
2012
Final household consumption
7.1%
2.3%
1.9%
3.1%
3.6%
4.2%
Gross fixed capital formation
15.4%
9.2%
8.3%
10%
10%
9.5%
Gross domestic product
5.1%
3.5%
2.7%
3.8%
4.2%
4.8%
Prime rate (year-end)
14.5%
15.5% 13.5%
13.5%
13.0% 13.0%
Inflation
6.5%
11.7%
7.7%
6.4%
5.7%
5.5%
USD/ZAR
7.04
8.22
8.40
7.42
8.21
9.07
GBP/ZAR
14.08
15.19
14.42
13.89
15.19
16.57
EUR/ZAR
9.64
11.97
11.05
10.43
11.15
12.08
Take aways
•
•
•
•
•
Global growth on brink of recession
Emerging markets weather storm
Commodities less vibrant – inflation relief?
Financial market turbulence not over
Rand risk may shore up new inflationary
pressures
• Economic growth: heightened risk factors
• Sustainable growth: swing in the mix
• Strength in wage demand kicker for 2009
spending
Thank you!
Danelee van Dyk
[email protected]
(011) 636 6242
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80
18
60
12
40
6
20
1991 1993 1995 1997 1999 2001 2003 2005 2007
0
Household debt to income (RHS)
(LHS)
(RHS)
Debt service cost to income ratio
Sources: Standard Bank Group, SARB
Per cent/ number
Per cent
Household debt affordability ratio
Rising financial distress
18
60
Per cent
12
40
6
20
0
0
1991 1993 1995 1997 1999 2001 2003
2005 2007 2009
(RHS)
Household debt to income (LHS)
Insolvencies ('00)
Debt service cost to income ratio (base case)
Sources: Stats SA, SARB, Standard Bank Group
Per cent/ number
80
Rising financial distress – topping
18
60
Per cent
12
40
6
20
0
0
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
(RHS)
Household debt to income (LHS)
Insolvencies ('00)
Debt service cost to income ratio (base case)
Sources: Stats SA, SARB, Standard Bank Group
Per cent/ number
80
Population share of income
80
70
Percentage share
60
50
40
30
20
10
0
1960
1970
1980
Asian
Sources BMR
African
1990
Coloured
2000
White
2007
Composition of income groups
Black upward income mobility
100%
Increase of
1.1 million
80%
60%
40%
20%
0%
1997
Up to R1090
R 10 000 - R 15 999
Sources: Stats SA
2001
R1100 - R3999
R 16 000 +
2007
R4000 - R9999