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The 2008 MTBPS: an exercise in the art of the possible

This article discusses the 2008 Medium Term Budget Policy Statement (MTBPS), the international financial crisis, and its impact on the global and South African economies. It also examines the measures taken to address the crisis and presents macroeconomic projections.

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The 2008 MTBPS: an exercise in the art of the possible

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

  2. 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

  3. 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?

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

  5. OECD leading indicator vs. growth Source : I-Graph

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

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

  8. Composition of current account

  9. Composition of capital inflow (%)

  10. Inflow of capital Source : I-Graph

  11. Rand vs. major currencies Source : I-Graph

  12. R/$ vs. VIX Source : I-Graph

  13. 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

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

  15. Have interest rates peaked? Source : I-Graph

  16. Household consumption in recession Source: I-Graph

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

  18. Government debt (% of GDP)

  19. 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

  20. MTBPS macroeconomic projections

  21. Consolidated national government budget

  22. National budget tax revenue

  23. National budget tax revenue (selected items)

  24. Borrowing requirement

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