Economics Division

MTBPS: Right mix, right time Goolam Ballim Financial Markets Economist Economics Division

Presentation outline • Timing • Policy mix

GDP, annual percent change Excluding China & India, Dev. country GDP is likely to be below 2.5% in 2002 Developing countries World South Africa USA 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Synchronised slowdown

Room for fiscal stimulus General government fiscal balance, % of GDP Advanced economies* United States Developing countries South Africa 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 * United States, European Union & Japan

% % South Africa USA Developing countries - right scale Advanced economies* 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 * United States, European Union & Japan Global disinflation

Global monetary easing Central bank rates, % per annum 11 Sept South Africa United States United Kingdom EMU Japan 1999 2000 2001

Policy mix

Policy mix • Major drivers of growth: 1) private sector & government capital spending;

Capital formation Net capital formation by organisation 1991 to 2000 Rand millions, nominal values

Real gross fixed capital formation Quarter-on-quarter percentage changeSeasonally adjusted at annual rate Private sector Total 1996 1997 1998 1999 2000 2001

Policy mix • Major drivers of growth: 1) private sector & government capital spending;2) declining interest rates;

SARB to lower rates further • SA likely to sustain disinflationary trend Percentage change year on year • Supported by: • 1. Slow growth in nominal labour costs, due to moderate wage increases and brisk productivity growth • 2. Continued liberalisation of SA economy • 3. Excess capacity over aggregate demand Prime lending rate CPIX 3-6% inflation target 1998 2000 2001 2002 1999

Policy mix • Major drivers of growth: 1) private sector & government capital spending;2) declining interest rates;3) declining tax rates;

Tax burden General government tax revenue, (% of GDP) • Easing tax burden over the coming years, particularly for individuals

Policy mix • Major drivers of growth: 1) private sector & government capital spending;2) declining interest rates;3) declining tax rates;4) consistent export drive and export diversification;

GDP & GDE Quarterly change, seasonally adjusted and annualised 1997 1998 1999 2000 2001

SA’s declining dependence on commodities amid increased exports Resources and net gold exports as a percentage of total exports

Policy mix • Major drivers of growth: 1) private sector & government capital spending;2) declining interest rates - long- and short-term rates;3) declining tax rates;4) consistent export drive and export diversification;5) macroeconomic stabilisation and policy credibility.

Policy mix • Major drivers of growth: 1) private sector & government capital spending;2) declining interest rates - long- and short-term rates;3) declining tax rates;4) consistent export drive and export diversification;5) macroeconomic stabilisation and policy credibility. • Low dependency on FDI reduces the probability of severe economic slowdown.

FDI Stocks $ billion

The end gballim@mail.sbic.co.za www.ed.standardbank.co.za Economics Division

Economics Division