South Africa: Economic highlights Johan Rossouw 17 February 2012 - - PowerPoint PPT Presentation

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South Africa: Economic highlights Johan Rossouw 17 February 2012 - - PowerPoint PPT Presentation

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South Africa: Economic highlights Johan Rossouw 17 February 2012 (021) 401-1049 E C O N O M I C johan@vunanisecurities.co.za R E S E A R C H South Africa: Economic highlights 2011 characterised by great uncertainty; will 2012 bring more

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South Africa: Economic highlights

Johan Rossouw

(021) 401-1049 johan@vunanisecurities.co.za

17 February 2012

E C O N O M I C R E S E A R C H

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South Africa: Economic highlights

Johan Rossouw

(021) 401-1049 johan@vunanisecurities.co.za

17 February 2012

E C O N O M I C R E S E A R C H

2011 characterised by great uncertainty; will 2012 bring more clarity?…

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World economy: phases of the crisis...

Source: IMF Global Financial Stability Review, September 2011

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South Africa: Economic & Strategy Update

Johan Rossouw

(021) 401-1049 johan@vunanisecurities.co.za

15th July 2010

E C O N O M I C R E S E A R C H

Disease amongst the PIIGS…

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2011: Expectation vs. outcome

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Global real GDP growth expectation: 2011-2012...

Source: IMF, World Economic Outlook, April 2011

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Global real GDP growth expectation: 2011-2012...

Source: IMF, World Economic Outlook, April 2011

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IMF cautions against unjustified interest rate tightening...

Source: IMF, Regional Economic Outlook, Sub-Saharan Africa, April 2011

  • “Where food and fuel price increases are

pronounced, monetary policy should accommodate the first-round response and lean against any second-round effects.”

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MPC statement: 12th May 2011...

Source: SARB

  • “Since the previous meeting of the Monetary Policy Committee, the inflation outlook has

deteriorated further, mainly as a result of external cost-push factors. Underlying demand conditions remain relatively restrained, and are not seen to pose a significant risk to the inflation outlook at this

  • stage. However there are elevated risks that these external price shocks could ultimately feed

through to more generalised inflation.

  • …a further upward revision to the CPI forecast of the Bank. Inflation is now expected to reach

the upper limit of the inflation target range during the final quarter of 2011, and to peak at 6,3 per cent in the first quarter of 2012 before returning to within the target range by the second quarter of 2012 and remaining close to the upper limit of the range for the rest of that year.

  • MPC has decided to keep the repurchase rate unchanged at 5,5 per cent ... Given the upside risks

to the inflation outlook, the MPC will monitor closely any indications of second round effects on inflation emanating from these cost pressures. The MPC will not hesitate to respond timeously to signs that threaten to move inflation out of the target range on a sustained basis. In addition, the MPC will remain vigilant with respect to any inflation risks that could emanate from domestic demand developments”.

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SARB’s inflation expectation.

Source: SARB Monetary Policy Review, May 2011.

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Markets suggested short rates on the way up...

Source: INET

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IMF updated world economic outlook.

Source: IMF World Economic Outlook Update, June 2011.

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SARB MPC statement, 21st July 2011.

Source: SARB.

  • “The inflation forecast of the Bank has shown a slight near-term deterioration since the

previous meeting of the MPC. Inflation is now expected to breach marginally the upper end of the target range in the final quarter of 2011, and to average 6,3 per cent in the first quarter of 2012. Thereafter it is expected to remain at the upper end of the target range for the next two quarters, before declining somewhat in the final quarter of the

  • year. …inflation is expected to decline gradually …to measure 5,6 per cent in the final

quarter of 2013. The Bank’s forecast of core inflation shows a moderately rising trend, peaking at around 5 per cent in the second quarter of 2012.

  • The MPC assesses the risks to the global economic environment to be on the

downside, and continued weakness in the US and UK economies has extended the likely duration of monetary accommodation, particularly in the face of declining fiscal stimuli.

  • Global inflation has been driven primarily by food and oil price developments. There

are, however, some indications that these price pressures may have peaked.

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World Economy: Red lights flashing...

Source: IMF World Economic Outlook, September 2011

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World economy: financial stability risks have increased...

Source: IMF Global Financial Stability Review, September 2011

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World economy: global financial stability map...

Source: IMF Global Financial Stability Review, September 2011

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Size of the EU bailout package...

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Size of the EU bailout package...

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Size of the EU bailout package...

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Size of the EU bailout package...

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Size of the EU bailout package...

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Size of the EU bailout package...

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The Greek tragedy...

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…became a battle to save the Euro...

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Excessive debt a broader European phenomenon...

Source: NY Times

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…and so was ballooning budget deficits.

Source: NY Times

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...reflected in punitive interest rate spreads.

Source: NY Times

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..and eventually triggered ratings downgrades.

Source: NY Times

Euro zone credit ratings

Debt on Issue (US$

Austria $277 Belgium $448 Cyprus $16 Estonia $0 Finland $105 France $1 872 Germany $1 593 Greece $390 Baa3 BBB+ BBB+ $130 Ireland $130 Italy $2 267 Luxembourg $6 Malta $6 Netherlands $449 Portugal $184 Slovakia $38 Slovenia $20 Spain $884 *US$ equivalent, according to Reuters CreditViews INVESTMENT GRADE RATINGS Not shown Aaa/AAA Aa/AA A/A Baa/BBB Ba/BB B/B Caa/CCC Ca/CC C/C Minimal risk Very low Low Moderate Substantial High Very high Near default Typically in default Sources: Moody's, S&P, Fitch A+ AAA AA+ AA A+ BBB- AAA Standard & Poor Fitch AA- BBB+ B+ AAA AAA AAA AAA A A- AAA A+ A- AA+ AAA AA AA A+ BBB- AA+ AAA A AAA A+ BBB+ CCC AAA AAA Aa2 Aaa Aaa Caa1 Baa3 Aa2 Aaa A1 Aaa Ba2 A1 Aa2 Aaa Moody's Aaa Aa1 A2 A1

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World Economy: Risks to the Global Outlook.

Source: IMF World Economic Outlook, September 2011

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MPC statement, 11th November 2011…

Source: SARB MPC Statement, 11th November 2011

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High volatility in 2011 and Rand weakening...

Source: INET

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2011 Asset class total returns...

Source: INET

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2012: Prospects

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The IMF sees doom and gloom ahead...

Source: IMF WEO Update, 24 January 2012

“The global recovery is threatened by intensifying strains in the euro area and fragilities elsewhere. Financial conditions have deteriorated, growth prospects have dimmed, and downside risks have escalated. Global output is projected to expand by 3¼ percent in 2012 — a downward revision of about ¾ percentage point relative to the September 2011 World Economic Outlook (WEO). This is largely because the euro area economy is now expected to go into a mild recession in 2012… Growth in emerging and developing economies is also expected to slow…” IMF World Economic Outlook Update, 24 January 2012

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Global GDP growth: sideways trend expected...

Source: IMF WEO Update, 24 January 2012

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IMF: Real GDP growth forecasts revised down.

Source: IMF WEO Update, 24 January 2012

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…and points at heightened risk of instability.

“Since the last Global Financial Stability Report (GFSR), risks to stability have increased, despite various policy steps to contain the euro area debt crisis and banking problems. European policymakers have outlined significant policy measures to address the medium-term issues contributing to the crisis, and some of these have helped to improve market sentiment, but sovereign financing remains challenging and downside risks

  • remain. If funding challenges result in a round of deleveraging by

banks, this could ignite an adverse feedback loop to euro area economies… Developments in the euro area also threaten emerging Europe and may spill over to other emerging markets.” IMF GFSR, January 2012.

Source: IMF GFSR Update, January 2012

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Euro Area Government bond markets (In percent

  • f total Euro Area debt).

Source: IMF GFSR Update, January 2012

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Resources prices holding up, though.

Source: INET & Vunani calculations and forecasts

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The Bank a little bit more bearish on inflation.

Source: SARB, 19 January 2012

“The inflation forecast of the Bank has been subject to a further upward revision. Inflation is now expected to remain outside the upper end of the target range for the whole of 2012 and to peak in the second quarter of 2012 at around 6,6 per cent before declining gradually and returning to within the target range in the first quarter of 2013.” MPC Statement 19 January 2012.

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Market suggests upward rates bias...

Source: INET

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Net foreign purchases of securities (R million) an important driver of the Rand exchange rate.

Source: INET & Vunani calculations and forecasts

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Domestic assets performed well in January ‘12...

Source: INET

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Asset Class Potential 12-Month Total Return (From 31st Jan. ’12) .

Sources: INET & Vunani calculations and forecasts

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South African Economic Indicators.

Sources: SARB, STATSSA, INET & Vunani calculations and forecasts

2010 2011Est. 2012F'cast 2013F'cast 2014F'cast Real final household consumption expenditure (%) 3.7 5.0 4.3 6.0 5.4 Real government consumption expenditure (%) 4.9 4.5 4.6 4.5 4.6 Real gross fixed capital formation (%)

  • 1.6

4.2 5.8 6.1 5.8 Change in inventories (R bn.)

  • 1.8

5.8 9.8 13.8 2.5 REAL GROSS DOMESTIC EXPENDITURE (%) 4.2 4.2 4.7 5.9 4.8 Real export growth (%) 4.5 6.1 4.2 4.4 5.9 real import growth (%) 9.6 9.6 10.7 11.8 9.7 Nominal net exports (R bn.) 27.2 32.9 8.0

  • 35.5
  • 55.6

REAL GROSS DOMESTIC PRODUCT (%) 2.9 3.1 2.8 3.6 3.4 Current account (R bn.)

  • 75
  • 84.1
  • 110.7
  • 154
  • 174.2

Current account as % of GDP

  • 2.8
  • 2.8
  • 3.4
  • 4.3
  • 4.5

Financial account (incl. unrecorded trans.) (R bn.) 106.3 135 150 170 200 CHANGE IN NET RESERVES (R bn.) 31.0 50.9 39.3 15.9 25.8 Headline inflation (avg.) (%) 4.3 5.0 6.0 5.0 5.3 Headline inflation (year-end) (%) 3.5 6.1 5.5 5.0 5.4 Producer inflation(average) (%) 6.0 8.4 6.6 7.9 8.4 Producer inflation (year-end) (%) 5.8 9.8 6.5 8.2 8.6 Rand/Dollar exchange rate (Q4 avg.) ('R) 6.89 8.05 8.13 8.71 9.24 Rand/Euro exchange rate (Q4 avg.) ('R) 9.36 10.80 10.55 11.20 11.86 Prime rate (year-end) (%) 9.0 9.0 9.0 10.5 11.0 SA 10 YR bond yield (Q4 avg.) (%) 8.02 8.12 7.98 8.42 9.5 FTSE/JSE ALSI (year - end) 32118 31985 38500 43275 45000 Brent oil price (year-end) ($) 94.8 110.0 110.0 110.0 110.0

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Disclaimer.

Vunani Securities (Pty) ltd is a registered financial services provider. The above material was produced by one of the companies in the Vunani Group. A Group Company and/or persons connected with it may effect or have effected a transaction for their own account in the investments referred to in the above material or any related investments before the material is published to any Group Company’s customers. A Group Company, persons connected with it and their respective directors and/or representatives and/or employees may have a position in the securities or any related investment and may make a purchase and/or sale, or offer to make a purchase and/or to buy any securities. The information and opinions contained in this document have been compiled or arrived at by the relevant Group Company’s judgment as of the date

  • f this document and are subject to change without notice. The information contained in this document is published for the as sistance of recipients, but is not to be relied

upon as authoritative or taken in substitution for the exercise of judgment by any recipient. No Group Company accepts any liability whatsoever for any direct or consequential loss arising from any use of this document or its contents.

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Real GDP: Supply...

Source: SARB Quarterly Bulletin, Dec. ‘11

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Real GDP: Demand...

Source: SARB Quarterly Bulletin, Dec. ‘11