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Economic landscape: How deep is the bottom?
18 November 2008
Danelee van Dyk
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
World growth: outgoing tide
Sources: International Monetary Fund
2% - 3.9%
0% - 1.9%
Less than zero
Insufficient data
10% - 14.9%
8% - 9.9%
6% - 7.9%%
4% - 5.9%
Above 15%
Sources: IMF
Financial distress aggravates slowdown
-5
-4
-3
-2
-1
0
Slowdownspreceded by
financial stress
Slowdowns notpreceded by
financial stress
Recessionspreceded by
financial stress
Recessions notpreceded by
financial stress
Pe
r ce
nt o
f GD
P
Economic slowdowns and recessions preceded by financial distress tend to involve 2-3 times greater cumulative output losses and tend to endure 2-4 times as long.
Sources: IMF
Forecast
Ultimately… no true decoupling
-2
0
2
4
6
8
10
12
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Ann
ual p
er c
ent
World Advanced economies Developed economiesChina Series5 Series6Series7 Series8
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
Sources: IMF, Bloomberg
Falling demand vs commodities
-9
-6
-3
0
3
6
9
12
1983 1986 1989 1992 1995 1998 2001 2004 2007
Pe
r ce
nt y
ea
r-o
n-y
ea
r
-24
-17
-10
-3
4
11
18
25
Pe
r ce
nt y
ea
r-o
n-y
ea
r
OECD leading indicator CRB commodity price index (RHS)
Sources: IMF
Importance of fuel, food and beverages on inflation
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
… South Africa not unscathed
Sources: Bloomberg
R80.2bn
-50000
-40000
-30000
-20000
-10000
0
10000
20000
2004 2005 2006 2007 2008
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
10.5
Total net foreign purchases of bonds and equities Dollar-rand exchange rate
Ran
d m
illio
n
Ran
d (in
vert
ed)
-R69bn
Exposing a potential funding crisis
Sources: Bloomberg
R m
illio
n
-60000
-50000
-40000
-30000
-20000
-10000
0
10000
20000
1995 1997 1999 2001 2003 2005 2007
-20000
-10000
0
10000
20000
30000
40000
50000
60000
Trade balance Net service receipts Net income receiptsCurrent transfers Net capital flows (RHS)
R m
illio
n
Rand weakness conquers global demand falloff?
Sources: Bloomberg
15
17
19
21
23
25
27
29
31
33
35
1960 1968 1976 1984 1992 2000
pe
r ce
nt o
f GD
P
-10
-5
0
5
10
15
20
Volume of exports Exports to GDP (LHS)
per
cent
yea
r-on
-yea
r
0%7%2%
30%
13% 31%
17%
Africa EuropeAmerica AsiaOceania Unclassified
14.4% 40.8%
24.4% 18.3%2.3%
Sources: SARS, SARB
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
Economic growth: fading smile?
“Up” cycle“Down” cycle
-3
0
3
6
9
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010f
Per
cen
t
Economic growth Poly. (Economic growth)Trend
Sources: SARB, Standard Bank Group
Sources: SARB; Standard Bank Group
Constructive rebalancing
0%
20%
40%
60%
80%
100%
2004 2005 2006 2007e 2008f 2009f 2010f
% c
on
trib
utio
n
Households Government GFCF
GDP growth – interest rate sensitive weakness
Sources: Stats SA, SARB
-3
0
3
6
9
12
2000 2001 2002 2003 2004 2005 2006 2007 2008
-3
0
3
6
9
12
Cumulative interest rate hikes (RHS) Wholesale and retail trade
Pe
r ce
nt q
/q s
.a.a
Pe
rce
nta
ge
po
ints
GDP growth – interest rate sensitive weakness
Sources: Stats SA,SARB
-3
0
3
6
9
12
2000 2001 2002 2003 2004 2005 2006 2007 2008
-3
0
3
6
9
12
Cumulative interest rate hikes (RHS) Wholesale and retail trade
Per
cen
t q/q
s.a
.a
Per
cent
age
poi
nts
GDP growth – debt-driven spending thrust
Sources: Stats SA, Standard Bank Group, SARB
-3
0
3
6
9
12
2000 2001 2002 2003 2004 2005 2006 2007 2008
0
5
10
15
20
25
30
35
Cumulative interest rate hikes (RHS) Cumulative household debt increases (RS)Wholesale and retail trade
Per
cen
t q/q
s.a
.a
Per
cent
age
poin
ts
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
Durable goods at forefront of decline
Sources: Standard Bank Group
-80
-60
-40
-20
0
0 1 2 3 4 5 6 7 8
Interest rate lag (quarters)
Cor
rela
tion
(%)
Durable goods Semi-durable goods Non-durable goods Services
Durables first to recover
Sources: Naamsa, Standard Bank Group, SARB
-30
-15
0
15
30
45
60
2000 2001 2002 2003 2004 2005 2006 2007 2008
Pe
r ce
nt y
ea
r-o
n-y
ea
r
2
5
8
11
14
17
20
Car sales House price growth
Prime rate 5 per. Mov. Avg. (Car sales)
Pe
r ce
nt
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
Fixed investment close to reaching target…
2014
0
5
10
15
20
25
30
35
1971 1976 1981 1986 1991 1996 2001 2006
Private sector Public sector General government
Pe
r ce
nt
Sources: SARB
… but downswing next four years?
2014
0
5
10
15
20
25
30
35
1971 1976 1981 1986 1991 1996 2001 2006
68
72
76
80
84
88
92
Private sector Public sectorGeneral government Capacity utilisation
Pe
r ce
nt
Pe
r ce
nt
6 to 10 year cycles
Sources: SARB
Sources: Engineering News; Standard Bank Group
Strong four to eight year thrust
0 2 4 6 8 10 12
Airports and aviation
Sports
Industrial
Water
Telecoms
Transport and logistics
Petrochemicals
Electricity
Mining
2007 estimates 2008 estimates
R116.9bn
2010 2012 20202014 20182008 2016
R331.8bn
R92.7bn
R159.4bn
R31.4bn
R9.9bn
R27.5bn
R11.2bn
R18.3bn
Time frame
2010 small fish in a big pond
2014
Gautrain 6%
Eskom36% Other
infrastructure47%
Stadiums2%
Transnet9%
Transnet4%
Stadiums1% Other
infrastructure23%
Eskom18%
Gautrain 3%
Private sector51%
Sources: SARB
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
Food deflation welcome development
Sources: Andrew Levy Wage Publications, Stats SA, Standard Bank Group
-40
-20
0
20
40
60
80
100
2000 2002 2004 2006 2008World Food Prices (USD) World Food Prices (ZAR)
yea
r-o
n-y
ea
r p
er
cen
t
Inflation revision: silver lining
Sources: Stats SA, Standard Bank Group
0
2
4
6
8
10
12
14
16
2006 2007 2008 2009 2010Current CPIX Reweighting 2008
New CPI Current CPIX
yea
r-o
n-y
ea
r p
er
cen
tCPIX New CPI
Weight Weight
Commodities 66.2 54.8
Services 33.7 45.8
Food 25.7 14.3
Transport 15.3 18.8
Housing 15.7 20.7
Electricity 3.6 1.7
Other 39.7 44.7
Forecast
Inflation revision: silver lining
Sources: Stats SA, Standard Bank Group
0
2
4
6
8
10
12
14
16
18
2006 2007 2008 2009 2010Current CPIX Reweighting 2008 New CPI
Current CPIX Prime
yea
r-o
n-y
ea
r p
er
cen
t
Forecast
Rand implications for inflation: scenarios
Sources: Stats SA, SARB, Standard Bank Group
4
6
8
10
12
14
Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09
Base caseRand Steady Oil Drop $10Oil gradual easing Rand weakens 20 centsOil gradual easing Rand weakens 50 cents
Pe
r ce
nt y
ea
r-o
n-y
ea
r
South African Growth Profile
Globalgrowth
Commodityprices
Currency risks
Localgrowth
Interest sensitive
Investment buffer
Inflation
Wages
Outlook
Inflation driving wage risk
Sources: Andrew Levy Wage Publications, Stats SA, Standard Bank Group
0
3
6
9
12
15
1992 1994 1996 1998 2000 2002 2004 2006 2008
5.8
7.1
8.4
9.7
11
12.3
CPI CPIX Andrew Levy wage settlement (RHS)
Pe
r ce
nt
… to double-digit levels
Sources: Andrew Levy Wage Publications
0
10
20
30
40
50
60
70
3% -4.9%
5% -5.9%
6% -6.9%
7% -7.9%
8% -8.9%
9% -10.9%
11% -11.9%
12% -12.9%
13% -13.9%
2006 2007 2008
% o
f se
ttle
me
nts
Metrics
2007 2008 2009 2010 2011 2012
Final household consumption 7.1% 2.3% 1.9% 3.1% 3.6% 4.2%
Gross fixed capital formation 15.4% 9.2% 8.3% 10% 10% 9.5%
Gross domestic product 5.1% 3.5% 2.7% 3.8% 4.2% 4.8%
Prime rate (year-end) 14.5% 15.5% 13.5% 13.5% 13.0% 13.0%
Inflation 6.5% 11.7% 7.7% 6.4% 5.7% 5.5%
USD/ZAR 7.04 8.22 8.40 7.42 8.21 9.07
GBP/ZAR 14.08 15.19 14.42 13.89 15.19 16.57
EUR/ZAR 9.64 11.97 11.05 10.43 11.15 12.08
Take aways
• Global growth on brink of recession• Emerging markets weather storm• Commodities less vibrant – inflation relief?• Financial market turbulence not over• Rand risk may shore up new inflationary pressures• Economic growth: heightened risk factors• Sustainable growth: swing in the mix• Strength in wage demand kicker for 2009 spending
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Household debt affordability ratio
Sources: Standard Bank Group, SARB
(RHS)
20
40
60
80
1991 1993 1995 1997 1999 2001 2003 2005 2007
Pe
r ce
nt
0
6
12
18
Household debt to income (RHS)
Debt service cost to income ratio
Pe
r ce
nt/
nu
mb
er
(LHS)
Rising financial distress
Sources: Stats SA, SARB, Standard Bank Group
(RHS)
0
20
40
60
80
1991 19931995 1997 1999 20012003 2005 2007 2009
Pe
r ce
nt
0
6
12
18
Household debt to income (LHS)Insolvencies ('00) Debt service cost to income ratio (base case)
Pe
r ce
nt/
nu
mb
er
Rising financial distress – topping
(RHS)
0
20
40
60
80
1991 19931995 1997 1999 20012003 2005 2007 2009
Pe
r ce
nt
0
6
12
18
Household debt to income (LHS)Insolvencies ('00) Debt service cost to income ratio (base case)
Pe
r ce
nt/
nu
mb
er
Sources: Stats SA, SARB, Standard Bank Group
Population share of income
Sources BMR
0
10
20
30
40
50
60
70
80
1960 1970 1980 1990 2000 2007
Pe
rce
nta
ge
sh
are
Asian African Coloured White
Black upward income mobility
Sources: Stats SA
0%
20%
40%
60%
80%
100%
1997 2001 2007Com
posi
tion
of in
com
e gr
oups
Up to R1090 R1100 - R3999 R4000 - R9999R 10 000 - R 15 999 R 16 000 +
Increase of 1.1 million
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