The 2008 MTBPS: an exercise in the art of the possible Jac Laubscher Group Economist 24 October 2008

International financial crisis: financial system ●Systemic risk being addressed ●Tentative signs of stabilisation ●Normalisation will take some time ●Financial system needs to be reformed: beware throwing out the baby with the bath water ●The underlying cause is human failure

International financial crisis: real economy ●Recession on its way  Developed countries: classical recession  Developing and emerging market countries: growth recession ●How severe and how long?

International economic downturn Source: IMF World Economic Outlook October 2008 %

OECD leading indicator vs. growth Source : I-Graph

OECD leading indicator vs. commodity prices Source : I-Graph

Current account (% of GDP) Source : I-Graph

Composition of current account % of GDP (H1 annualised) Trade balance Net service receipts Net income receipts SACU transfers Current account

Composition of capital inflow (%) H Direct investment Portfolio investment Other investment Unrecorded transactions

Inflow of capital Source : I-Graph

Rand vs. major currencies Source : I-Graph

R/$ vs. VIX Source : I-Graph

Reuters headlines: 23 October at 15:00 ●Sterling hits multi-year lows ●C. European FX pressured, forint touches new low ●Norway finmin says “crisis pull-out” hit crown ●Brazil’s currency plunges nearly 6% ●Mexican peso loses 4.9% before official open ●Turkish lira weakens as central bank action eyed ●Romanian leu down 2.5% vs euro in volatile trade ●Asian FX plumbs multi-year lows on growth fears

CPIX inflation vs. R/$ Source : I-Graph

Have interest rates peaked? Source : I-Graph

Household consumption in recession Source: I-Graph

Yield on l.t. bonds: SA vs. global Source : I-Graph

Government debt (% of GDP)

The MTBPS view: two scenarios ●A deep global recession → reduction in international trade → prolonged period of much slower growth in SA → real income and corporate profits under pressure ●Global economic adjustment in medium-term → more balanced growth → benign outcome for SA ●MTBPS is based on second (more optimistic) scenario ●The risk is to the downside

MTBPS macroeconomic projections GDP growth (%) CPI inflation (%) (CPIX 11.6) Current account (% of GDP)

Consolidated national government budget 2008/092009/10 Feb. budgetMTBPSFeb. budgetMTBPS Tax Revenue % of GDP Non-interest Expenditure % of GDP Real growth (%) Balance % of GDP

National budget tax revenue 2008/092009/10 Feb. budgetMTBPSFeb. budgetMTBPS Total Tax Revenue Income & profits Payroll & workforce Property Goods & services International trade

National budget tax revenue (selected items) 2008/092009/10 Feb. budgetMTBPSFeb. budgetMTBPS Total Tax Revenue Companies Transfer duties VAT Fuel levy Customs duties

Borrowing requirement 2007/082008/092009/102010/112011/12 General government % of GDP Public sector % of GDP