1 / 26

Macro-economic implications of the budget

Macro-economic implications of the budget. BER presentation to the PORTFOLIO COMMITTEE ON FINANCE. Pieter Laubscher 27 February 2007. Presentation outline. Macro-economic backdrop The 2007/8 budget & macro-economic policy Economic implications of the budget Economic growth

maldonadot
Download Presentation

Macro-economic implications of the budget

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Macro-economic implications of the budget BER presentation to the PORTFOLIO COMMITTEE ON FINANCE Pieter Laubscher 27 February 2007

  2. Presentation outline • Macro-economic backdrop • The 2007/8 budget & macro-economic policy • Economic implications of the budget • Economic growth • Inflation & interest rates • BoP & exchange rate • General remarks • Economic forecasts, 2007/8

  3. Macro-economic backdrop

  4. Weaker expectations point to a flattening out of global economic conditions …

  5. Real GDP growth accelerated to a 5% tempo, 2004/6 • Business cycle upswing more than 7 years old • Growth is more stable & sustainable • Household consumption contributed 85% of the growth 2004/6 • But GDFI has been growing in excess of 9% pa since 2003 • Net exports made a strong negative contribution (-2.4%) Ave 2004/6

  6. Business and consumer confidence trend at historical highs … • Relentless increase in business confidence since 1999Q3 • RMB/BER BCI above 80 index points since end-2004 • Consumer confidence increased sharply since 2004/5 – currently close to historical peaks

  7. Up-tick in inflation is expected to be contained … • CPIX inflation has averaged within 3-6% range for 41 consecutive months • CPIX expected for 2007, 5.4%, up from 4.6%, 06Q1 • Inflation outlook improved since the end of 2006 • Inflation expectations appear to be well-anchored 2006Q4

  8. Long-term interest rates at historical low, despite up-tick in CPI and repo rate … • Repo rate increased 200 bps, 2006H2 • Fiscal surplus boosted bond market end-2006 • Bond market discounting lower inflation & growth? • Short-term interest rates probably have peaked, but upside risk …

  9. Current account deficit approaches 6% of GDP … but handsomely financed … • Strong expansion of GDE & imports, 2004/6 • Poor export growth, 2002/6 (3% pa) • Accelerating SACU payments (1.1% of GDP) • Capital account prospects remain promising Forecast

  10. Longest business cycle upswing on record …

  11. Initial phase: 99Q3 – 2002 Steady growth 3.2% pa, particularly GDE (2.5% pa) Fiscal ‘austerity’ Limited formal employment creation Mild household credit spending Supportive net export growth: BCA surplus in 2002 / weak ZAR Domestic economic resilience in face of 2000/1 world recession 2nd phase: 2002/3 – present More rapid growth 4.5% pa, led by GDE (6.7% pa) Moderate fiscal stimulation Stronger employment growth: private sector ‘upsizing’ Strong hhold debt accumulation/ sharp interest rate cuts, 2003/5 Weak export growth: BCA deficit 5.7% of GDP (2006) / strong ZAR Strong capital inflows in BoP The current expansion: 1999Q3 - present

  12. The 2007/8 budget & macro-economic policy

  13. Public sector spending: more expansionary since 2001/2

  14. Consolidated expenditure: economic classification – strong real growth

  15. Budgeting for a balanced budget over the MTEF … • Tax overruns a function of strong economic growth and sound fiscal finances • Real non-interest expenditure grow by 7.7% pa over MTEF • Net R12.4 billion tax relief, 2007/8 • Cyclical stimulus to demand-side of the economy

  16. Tax on individuals (% of total revenue) • Personal tax relief R8.4bn, 2007/8 • Declining personal tax contribution to total revenue • Important driver of the consumer boom

  17. Tax on companies (% of total revenue) • Corporate taxes have been a key source of tax overruns • Corporate tax contribution to total tax revenue has recovered • Could be more scope to consider tax relief to stimulate the production side of the economy

  18. Government debt (% of GDP) • Retirement of state debt 2nd consecutive fiscal year • Smaller debt service burden creates room for additional spending • Fiscal prudence provide solid basis for future budgets & instills confidence

  19. Public sector borrowing requirement … • Projected PSBR 2009/10 R32.3bn (1.4% of GDP) • Conducive to lower long-term interest rates • ‘Crowding-in’ private fixed investment

  20. Economic implications of the budget

  21. Budget supports growth … may not be anti-cyclical enough at this stage … • Stimulates consumer spending - net personal tax relief - R6.6bn (0.6% of HCE) • Real govt. wage growth, 4.7% pa • Company tax proposals marginally positive i.t.o. fixed investment • Bolsters consumer & business confidence

  22. Inflation & interest rates … • Excise & duties neutral i.r.o. inflation • Stimulus of the demand side of economy could put pressure on inflation • Govt. wage growth negative for inflation? • Budget stimulus will keep SARB on the back foot

  23. Balance of payments & exchange rate … • Budget should bolster investor confidence • Gradual exchange control relaxation positive • Current account to remain under pressure • Rand vulnerable in case of capital outflows

  24. General remarks • Mostly upside: • Sound fiscal finances • Generally stable expenditure & tax ratios, implying no dramatic fiscal effects • Attention to savings: government savings positive 2009/10; savings & retirement reform • Some evidence of delivery i.t.o. infrastructure spend (e.g. roads), but needs to be stepped up • Downside, if any: • Combination of ‘dovish’ monetary policy and ‘stable’ fiscal policy at this point may not be enough to address macro-economic imbalance reflected in BCA, which implies risk

  25. Economic Forecasts, 2007/8

  26. Bureau for Economic ResearchEconomic information that works for you Website: www.ber.sun.ac.za E-mail: pl@ber.sun.ac.za Tel No: 021-887 2810

More Related