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Key developments over the past quarter

Economic Outlook: Rian le Roux Chief Economist, OMIGSA “The world and SA economies: Is the bottom in sight?”. Global Downturn intensifies further Ditto policy response More recently: some stabilisation signs Local: Downturn intensifies further Ditto policy response More recently:

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Key developments over the past quarter

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  1. Economic Outlook: Rian le RouxChief Economist, OMIGSA“The world and SA economies:Is the bottom in sight?”

  2. Global Downturn intensifies further Ditto policy response More recently: some stabilisation signs Local: Downturn intensifies further Ditto policy response More recently: Growth weak, considerable downside risks Inflation easing, but still some obstacles Rand/interest rates: mini-repeat of 2003 cycle? Key developments over the past quarter

  3. Economist survey GDP forecasts for 2009 GDP forecasts for 2009 4 12.0 10.0 2 China 7.5 India 0 5.0 Russia Other 8 * 2.5 -2 USA Brazil Euro 0.0 -4 -2.5 Japan -4.0 -6 08 09 08 09 * Australia, Austria, Belgium, Denmark, Netherlands, Spain, Sweden, Switzerland Source: OMIGSA, IRIS

  4. GDP forecastsEconomist survey Severe downturn this year, some recovery expected in 2010 Source: OMIGSA, IRIS

  5. Some stabilisation signs emerging?

  6. US Housing affordability and home sales 8 175 Existing home sales Affordability index 150 7 125 6 100 5 75 Stabilising? ‘Affordability’ has exploded 4 50 98 00 02 04 06 08 80 85 90 95 00 05 10 Source: OMIGSA, IRIS

  7. Empire State (NY) & Philly Fed new orders indices catch some attention –may suggest inventory cuts slowing Philadelphia Empire 40 40 40 40 40 40 40 40 40 40 40 40 40 40 40 20 20 20 20 0 0 0 0 -20 -20 -20 -20 -40 -40 -40 -40 -60 -60 -60 -60 -60 -60 -60 -60 -60 -60 -60 -60 -60 -60 -60 02 04 06 08 02 04 06 08 Source: OMIGSA, IRIS

  8. China money supply growth Y-o-y % change 30 30 Money supply growth Bank lending growth 25 25 20 20 15 15 10 10 98 00 02 04 06 08 10 Source: OMIGSA, IRIS

  9. Commodity demand signs? Credit markets defrosting? Copper price recovering Libor rate falling Source: OMIGSA, INET

  10. Corporate retrenchments: Capex, job & inventory cutbacks Consumer spending retrenchment But, some considerable downside risks still

  11. Capex cuts, job shedding & spending restraint hold downside risks – USA as an example 139.0 60 90 20 Total employment, m down 5.1m or 3.7% Capacity utilisation rate in manuf 80 15 130.0 40 10 122.5 20 60 117.5 5 0 110.0 0 40 Personal savings rate Capex intentions, Philly survey 103.0 -5 -20 30 88 91 94 97 00 03 06 09 88 91 94 97 00 03 06 09 Source: OMIGSA, IRIS

  12. Inventory cutbacks a big drag on production 20 20 20 145 145 145 Real change in inventories $bn GDP y-on-y % ch 15 100 10 50 5 0 0 -5 -50 -10 -15 -15 -15 -110 -110 -110 70 73 76 79 82 85 88 91 94 97 00 03 06 09 Source: OMIGSA, IRIS

  13. Risks over next few months • Recession remains severe, recovery hopes postponed • Bank lending remains frozen • Corporate stress: mass lay-offs, investment collapse continues • Consumers don’t spend: savings surge continues • Renewed asset price declines • EM slump: trade & commodity price collapse • Policy works much earlier/better than expected • Policy measures gain traction in the US, decent recovery in H2 • China rebounds strongly, other EM’s too on policy stimulus • Still lots of the former around, although more promising signs of stabilisation in the US; China data increasingly points to some acceleration

  14. Medium-term global picture: less favourable • While policy stimulus may bring a solid initial cyclical rebound, medium-term prospects are not great • Over-borrowed, savings-short, asset-dependent US consumer likely faces an extended period of consolidation • Global trade boom of past few years unlikely to revive to its previous glory • Non-infrastructure capacity expansion boom around the world stopped in its tracks • Medium term global growth likely to be notably slower than the 4.5% p.a. of 2003 - 2008

  15. Pace of downturn losing momentum Getting closer to end of the down leg of the cycle Recovery still some way off, though: Still uncertainty over whether it’s a V, a U, an L or a W Market volatility to remain high Macro uncertainty Earnings slump and uncertain prospects Global summary

  16. Current local situation • Growth • Very sick, risks to the downside still • Inflation • Outlook OK, but not great • Foreign trade: finally improving? • Services deficit narrowing notably, as expected • Policy: stimulus becoming more aggressive • SARB to frontload cuts, may cut 200bp’s next 3 months • ZAR/Interest rates interplay – what will the cycle look like?

  17. SA: GDP forecasts for 2009Slashed 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 Consensus median 4 4 2 2 0 0 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 -2 06 08 Source: OMIGSA, IRIS

  18. Consumer demand still depressed 40 40 Car sales Consumer credit growth thousands per month 30 30 20 20 10 0 10 85 88 91 94 97 00 03 06 09 85 88 91 94 97 00 03 06 09 Source: OMIGSA, IRIS

  19. % 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 20 Real disposable income growth Real HCE growth Disposable income growth 15 5 5 10 0 0 5 CPIX -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 -5 0 92 94 96 98 00 02 04 06 08 10 92 94 96 98 00 02 04 06 08 10 Consumer spending outlook: Improving later in the year Source: OMIGSA, IRIS

  20. Investment cycle pointersUgly, to say the least Machinery imports in $ Residential build plans 75 60 Machinery GFCF 50 20 25 0 -20 -25 Residential GFCF -50 -60 82 87 92 97 02 07 82 87 92 97 02 07 Commercial vehicle sales Non-residential build plans 60 100 50 20 0 -20 Transport GFCF Non-residential GFCF -60 -75 82 87 92 97 02 07 82 87 92 97 02 07 Source: OMIGSA, IRIS

  21. Sources of demand weakness & production side hits 160 180 30 30 Inventory change Manuf prod indx Export vol change Mining prod indx 20 20 130 150 10 10 110 130 0 0 90 110 -10 -10 75 95 -20 -20 60 80 -30 -30 90 92 94 96 98 00 02 04 06 08 10 12 90 95 00 05 10 Source: OMIGSA, IRIS

  22. Q1 2009 GDP growth likely worse than Q4 ‘08’s -1.8% saar Real GDP, q-o-q annualised growth 10.0 7.5 5.0 2.5 0.0 -2.5 Q1 ’09 GDP could be -3.5% annualised -5.0 90 92 94 96 98 00 02 04 06 08 10 Source: OMIGSA, IRIS

  23. Current accountFinally improving Trade balance % GDP 5.0 7.5 CA % GDP 5.0 2.5 2.5 0.0 -2.5 0.0 -5.0 90 93 96 99 02 05 08 -2.5 Services Balance % GDP -2 -3 -5.0 -4 -5 -7.5 -6 -7 -10.0 90 93 96 99 02 05 08 90 93 96 99 02 05 08 Source: OMIGSA, IRIS

  24. Inflation forecast: OK, but not great 20 20 CPI y/e 2009: 5.6% 15 15 10 10 5 5 • Assumptions: Rand: 9.60 end ’09 Oil: $60/bbl end ’09 Food: 5% end ’09 Eskom: 35% ’09; 35% ‘10 0 0 90 92 94 96 98 00 02 04 06 08 10 Source: OMIGSA, IRIS

  25. CPI inflation forecast 22 22 CPI 20 20 Food 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 97 99 01 03 05 07 09 Source: OMIGSA, IRIS

  26. Downside risks from: Global downturn: Via trade flows or capital flows Post-election policy worries resurface Support from: Lack of serious financial crisis or need for emergency aid (perceived crisis) Still OK fiscal situation (relative to others), relatively high interest rates Precious metal price support Expected further narrowing of c/a deficit Eventual world recovery should be EM currency ‘friendly’ We are in latter camp: expect broad rand stability with firmer bias What about the Rand?

  27. Rand and consensus viewsRisk of a notably stronger ZAR? 16 16 16 16 ZAR per € ZAR per USD 14 14 12 12 10 10 8 8 6 6 4 4 4 4 00 02 04 06 08 10 Source: OMIGSA, IRIS

  28. Interest ratesFront loading the easing cycle Chance of faster/deeper cuts has increased further • Sharp growth slowdown, risks skewed to the downside • Rand has firmed sharply • C/A deficit worries ease as services deficit narrows • Inflation outlook OK Rand/interest rate ‘mix’ an important consideration • Further ZAR strength, followed by much deeper rate cuts than expected • SARB ‘stops’ rand appreciation (R9/$+), rates fall ‘as expected’ • Former outcome risks another consumer boom and harder landing later

  29. Interest rates & Inflation 30 30 Prime Rate & Base Case forecast Inflation & Base Case forecast 25 25 20 20 15 15 10 10 5 5 0 0 90 92 94 96 98 00 02 04 06 08 10 Source: OMIGSA, IRIS

  30. Interest rates & Inflation – Alternative scenario 30 30 Prime Rate & Base Case forecast Inflation & Base Case forecast 25 25 Alternative scenario 20 20 15 15 10 10 5 5 0 0 90 92 94 96 98 00 02 04 06 08 10 Source: OMIGSA, IRIS

  31. Economy weak: Exports, private capex, parts of consumption, inventory rundown Consumption may be stabilising, though Inflation outlook OK, but not great Current account + rand risks appear to have eased Risk of a ‘too strong rand’ growing SA Summary

  32. SA Macro forecasts for 2009-2011 updated : 16.04.2009 Source: OMIGSA, IRIS

  33. Regulatory Information Old Mutual Investment Group (South Africa) (Pty) Limited Physical Address: Mutualpark, Jan Smuts Drive, Pinelands, 7405 Telephone number: +27 21 509 5022 Old Mutual Investment Group (South Africa) (Pty) Limited is a licensed financial services provider, FSP 604, approved by the Registrar of Financial Services Providers (www.fsb.co.za) to provide intermediary services and advice in terms of the Financial Advisory and Intermediary Services Act 37 of 2002. Old Mutual Investment Group is a wholly owned subsidiary of Old Mutual (South Africa) Limited. Reg No 1993/003023/07. The investment portfolios may be market-linked or policy based. Investors’ rights and obligations are set out in the relevant contracts. Market fluctuations and changes in rates of exchange or taxation may have an effect on the value, price or income of investments. Since the performance of financial markets fluctuates, an investor may not get back the full amount invested. Past performance is not necessarily a guide to future investment performance. Personal trading by staff is restricted to ensure that there is no conflict of interest. All directors and those staff who are likely to have access to price sensitive and unpublished information in relation to the Old Mutual Group are further restricted in their dealings in Old Mutual shares. All employees of Old Mutual Investment Group are remunerated with salaries and standard short-term and long-term incentives. No commission or incentives are paid by Old Mutual Investment Group to any persons. All inter-group transactions are done on an arms lengths basis. In respect of pooled, life wrapped products, the underlying assets are owned by Old Mutual Life Assurance Company (South Africa) Limited who may elect to exercise any votes on these underlying assets independently of Old Mutual Investment Group. In respect of these products, no fees or charges will be deducted if the policy is terminated within the first 30 days. Returns on these products depend on the performance of the underlying assets. Old Mutual Investment Group has comprehensive crime and professional indemnity insurance. For more detail, as well as for information on how to contact us and on how to access information please visit www.omigsa.com.

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