A Macroeconomic Perspective A Macroeconomic Perspective on Budget 2003on Budget 2003

Dr Iraj AbedianDirector & Group Economist

Hearings on the Appropriation Bill (Budget 2003/4)

The Parliament, Cape Town

March 5, 2003

Presentation outline

A global economy perspective

A national economy perspective

The 2003 Budget & its major macroeconomic aspects

Concluding remarks

A global perspective

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

United States

United Kingdom

EMU

Japan

Major economies in trouble

Real GDP growth in 2002

% q/q, seasonally adjusted and annualised

Source: Bloomberg

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

South Africa

Source: Statistics South Africa

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2003

United States United KingdomEMU Japan

RSA likely to outshine majors

Projected real GDP growth

% y/y

Source: IMF World Economic Outlook, September 2002

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2003 2004 2005

SBSA

Budget 2003

Source: Standard Bank Economics & Budget 2003

South Africa

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

United States United KingdomEMU Japan

Balance of Payments in healthy state…

Current account balance as a % of GDP

Source: OECD

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

South Africa

Source: SARB Quarterly Bulletin

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

1990

199119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

04

United States United KingdomEMU Japan

Global fiscal pressures on the rise…General government financial balances

Surplus (+) / deficit (-) as a % of GDP

Source: OECD

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

South Africa

Source: Various National Budgets

Global government debt rising…!

(% of GDP)General government gross financial liabilities

20

40

60

80

100

120

140

160

United States

United Kingdom

EMU

Japan

Source: OECD

40

50

60

70

80

90

100

110

2000 2001

Index January 2000 = 100Falling index equals US$ appreciation

2002

GBP/US$

EURO/US$

US$/ZAR

US$/JPY

Source: Bloomberg, Standard Bank Economics

2003

US$ falling compared to majors & Rand..

40

50

60

70

80

90

100

110

2001

Index January 2001 = 100Falling index equals US$ appreciation

2002

AUD

BRL

ZAR

PZL

Source: Bloomberg, Standard Bank Economics

2003

US$ falling compared to select minors:

A national economy perspective

-4

-2

0

2

4

6

8

10 % per annum

1970s 1980s1960s

Source: Statistics South Africa & Standard Bank Economics

1990s 2000s

Turning

pointForecast

Secular turn in RSA GDP growth

SA’s rising economic resilience

Pillar One:

Reinforced by Structural Changes,

South Africa’s Economic Efficiency is rising……

Structural changes have transformed the economy….

0

10

20

30

40

50

60

70

1950s 1960s 1970s 1980s 1990s 2002

Primary Secondary Tertiary

% share of total GDP

Source: SARB Quarterly Bulletin; Statistics South Africa

10

15

20

25

30

35

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

SA’s rising export levels & rising competitiveness

Total exports to GDP

Source: SARB Quarterly Bulletin

6967

6463

61

5651484645

40333231

242120191713119876543

21

0 1 2 3 4 5 6 7 8

TurkeyIndonesia

RussiaArgentina

PhilippinesColumbia

PolandIndia

BrazilMexico

Czech RepublicChina

South AfricaThailand

IrelandSouth Korea

ChileIsrael

Hong KongJapanBritain

NorwayCanada

AustraliaSwitzerland

SwedenSingapore

TaiwanFinland

United States

Source: World Economic Forum

Competitiveness rankings

SA’s rising economic resilience

Pillar Two:

SA’s export diversification paying off

17

0

10

20

30

40

50

60

70

80

90

100

1996 1997 1998 1999 2000 2001 2002

20

22

24

26

28

30

32

34

36Non-resources exportsNet gold exportsExports to GDP

South Africa’s declining dependence on commodities, amid increased export orientation

Exp

ort/G

DP

ratio

AverageQ1-Q3

Increased manufacturing orientation of SA Exports

10

20

30

40

50

60

70

80

90

1991-1995

Shares in total exports, 1995 prices

1996-2000

Source: TIPS

Mining Manufacturing

SA’s rising economic resilience

Pillar Three:

Macroeconomic Stability & Solid Fiscal Conditions

SA: real GDP & rising fixed investment

-2

0

2

4

6

8

10

2000

Percent change q/q, seasonally adjusted and annualised

2001 2002

Source: SA Reserve Bank

Gross fixed investment

Government expenditure

Household consumption expenditure

GDP

Inflationary Trends Declining…

Source: Statistics South Africa, Standard Bank Economics

0

5

10

15

20

25%

CPI

PPI

80 82 84 86 88 90 92 94 96 98 00 02 2000 2001

%

CPI

PPI

2002 2003

Forecast

Secular downtrend temporarily restrained

2

4

6

8

10

12

14

16

2

6

10

14

18

22

26

Feb-98 Feb-99 Feb-00 Feb-01 Feb-02 Feb-03

Percent per annum

Real prime -deflated by CPIX

Nominal prime

Forecast

SA’s declining interest rates outlook

CPIX

Real prime forecast based on updated

CPIX forecasts and current Alt 2

interest rate outlook

0

5

10

15

20

25

1999 2000 2001 2002 2003

Prime Repo

SA’s attractive yield draws inflows…

RSA nominal interest rates

Source: SBSA (EcoServ)

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

USA UKEMU RSA

Source: IMF World Economic Outlook, Consensus Economics & SBSA

Real interest rates% %

-20

-10

0

10

20

30

40

50

Tu

rke

y

Bra

zil

Ve

ne

zue

la

Ru

ss

ia

So

uth

Afr

ica

Ind

on

es

ia

Cro

ati

a

Me

xic

o

Eg

yp

t

Ph

ilip

pin

es

Co

lom

bia

Po

lan

d

Isra

el

Ind

ia

Arg

en

tin

a

Hu

ng

ary

So

uth

Ko

rea

Pe

ru

Ma

lay

sia

Ch

ile

Cze

ch

Re

pu

blic

Th

aila

nd

Ta

iwa

n

Ho

ng

Ko

ng

Sin

ga

po

re

Interest rates GDP

Emerging markets comparison:short-term interest rates & GDP (Q3/02, %Y/Y)

40

50

60

70

80

90

100

110

2000 2001

Index January 2000 = 100Falling index equals rand depreciation

2002

Euro/ZAR

GBP/ZAR

US$/ZAR

ZAR/JPY

Source: Bloomberg, Standard Bank Economics

R13/86/$ on 20 Dec 2001

2003

ZAR against primary currencies

SA’s rising economic resilience

Pillar Four:

Deepening Democracy & Social Stability