MACRO-ECONOMIC OVERVIEW. Johann Els Senior Economist at Old Mutual Investment Group

Transcription

1 MACRO-ECONOMIC OVERVIEW Johann Els Senior Economist at Old Mutual Investment Group

2 EXECUTIVE SUMMARY Global recovery slow with considerable regional differences Inflation remains low, thus global policy expansionary US rate hikes to start, but slow, moderate cycle Commodity prices remain under pressure Difficult environment for EM s SA Economy in a slow growth bind Inflation remains well contained Moderate further rate hikes Current account deficit to narrow Rand at risk from US rate hikes BUT it is not all bad news: 215 still somewhat better than 214 PLUS trade & current account improvement & OK inflation should help Rand and keep interest rate cycle moderate 2

3 MAIN MACRO THEMES FOR THE REST OF 215 Global Goldilocks? SA suffers China transition Low return world 3

4 Goldilocks?

5 GLOBAL GROWTH UNEXCITING, BUT 6 4 Real World GDP growth (y-o-y % ch) ave Excl 28/

6 GLOBAL GROWTH GEOGRAPHICAL DIFFERENCES Composite Purchasing Managers Indices (combined manufacturing & services) 6 US Europe China Global (JPM)

7 GLOBAL INFLATION REMAINS VERY LOW 1 1 China US Euro area USA & Euro Inflation target China target

8 GLOBAL INTEREST RATES EXPANSIONARY POLICIES A few exceptions 6 % % 18 Brazil 15 4 New Zealand 2-2 Denmark Switzerland Australia Korea UK Israel US Euro Japan Sweden Russia Turkey Indonesia India SA China Poland Hungary Thailand

9 US LOW INFLATION REMAINS A CONCERN FOR FED PCE deflators 6 Total Total 6 Core Core

10 US: STRONG DOLLAR COULD KEEP INFLATION LOW US Dollar (y-o-y % ch) 3 Import prices (y-o-y % ch)

11 US: STRONG DOLLAR IMPACTING ON EXPORTS & ECONOMY Growth in US exports 3 ISM manufacturing export orders US Dollar (y-o-y % ch)

12 US: FED S HIKING CYCLE LIKELY SLOW, MEASURED 7 6 US policy interest rate Core inflation Unemployment rate (inverted scale)

13 FED S EXPECTED RATE PROFILE FLATTER THAN PREVIOUS CYCLES 216 & 217 y-end median forecast lowered 1 8 Fedfunds rate FOMC forecast for year end fedfunds rate Sept ' Dec ' Mar ' Median projection of FOMC members Sep 214 meeting Dec 214 meeting March 215 meeting June 215 meeting Jun' Median projection of FOMC members (June meeting)

14 China transition

15 CHINA LOOKS WEAK Some recovery in May & June IP growth 3 25 Apr: 5.9% yy May: 6.1% yy June: 6.8% Retail sales growth Apr: 1.% yy May: 1.1% yy June: 1.6% M2 growth Apr: 1.1% yy May: 1.8% yy June: 11.8% Bank lending growth Apr: 14.1% yy May: 14.% yy June: 13.4%

16 COMMODITY PRICES UNDER PRESSURE Commodity prices excluding gold in real dollar terms 16

17 CHINA: LOW INFLATION Total CPI inflation PPI inflation CPI excl food Food inflation Total CPI inflation PPI inflation CPI excl food Food inflation

18 CHINA: LOW INFLATION ROOM FOR MORE POLICY EASING Bank's Reserve Ratio Requirement Central Bank policy rate Inflation target CPI inflation

19 SA suffers

20 GROWTH DISAPPOINTMENT ACTUAL GDP GROWTH AND FORECASTS FOR EACH YEAR: SARB FORECASTS 5 Real GDP growth 5 4 Bars = Actual Lines = SARB forecasts & 216 = OMIG estimates

21 SLOW GROWTH KEEPS UNEMPLOYMENT HIGH Unemployment rate Total (expanded definition) = 7.3m unemployed Total (official/narrow definition) = 5.2m unemployed

22 SHORT TERM OUTLOOK NOT GREAT 11 SARB leading indicator Political constraint on investment in manufacturing Standard Bank SA PMI Consumer confidence

23 Q2 GDP GROWTH DOWN TO ZERO? GDP saar Q2 est data edge Q2 15 Q1 Q4 Q-o-q saar Mining May Manufacturing May Electricity May Wholesale Sales May Retail Sales May Building plans passed April Car sales June Commercial vehicle sales June Consumer credit extended June Corporate credit extended June GDP June Between.% & +1.%

24 ELECTRICITY INTENSITY OF GDP CAN PROBABLY NOT GO MUCH LOWER so it is now a real binding constraint on further GDP expansion 16 GDP, real, 2 = 1 Electricity use, 2 = 1 Electricity : GDP

25 TOURISM RECEIPTS BEING UNDERMINED Ebola related slump struggles to reverse on visa troubles 25 Tourist arrivals, Net tourism receipts, % of GDP

26 CAR SALES SLIPPING FAST Car sales (seas adj, ') 43 Commercial vehicle sales (seas adj, ') mth ma 3mth ma

27 CONSUMERS EVEN MORE DEPRESSED Total consumer confidence SA economic position Household financial position Time to buy durables

28 RAND HURTING Amongst the weakest in a basket of EM & commodity currencies Currencies per USA Dollar, indexed Jan 211 = Weaker Stronger Russia Brazil South Africa Turkey Indonesia India Australia Hungary Mexico Canada Czech Rep New Zealand South Korea

29 BUT RECENT MOVES IN LINE WITH OTHERS BEING HURT BY STRONG DOLLAR & WEAK COMMODITY PRICES Currencies per USA Dollar, indexed Jan 214 = 1 15 BRAZIL Weaker Stronger HUNGARY NEW ZEALAND AUSTRALIA SOUTH AFRICA INDIA

30 Is there any good news in the SA economy?

31 TRADE IMPROVEMENT Two consecutive trade surpluses Balance Rbn 2 Seas adj, $m, 3 mnth mov ave Imports 975 Exports

32 THANKS TO RECOVERING GOLD & PLATINUM EXPORTS; FALLING OIL IMPORTS seas adj, $m, 3 mth ma Gold, platinum & diamonds Oil imports

33 AND MANUFACTURED EXPORTS LOOKING BETTER! Manufactured exports as % of total

34 CURRENT ACCOUNT DEFICIT COULD SHOW SHARP IMPROVEMENT IN Q2 But gain at risk from commodity prices in H2 215 Current account balance as share of GDP

35 SOME GOOD NEWS IN REAL ECONOMY SARB coincident indicator 12 Car exports (' units per month)

36 CONSUMERS UNDER LESS PRESSURE THAN IN PREVIOUS CYCLES % 4 3 Disposable income growth Inflation plus prime rate (& forecast) Real consumer spending growth

37 CORE INFLATION DIPPING y-on-y % change 14 Headline: 4.7% in June (from 4.6% in May) 12 Core: 5.5% in June (from 5.7% in May)

38 FOOD INFLATION: SOME PRESSURE FROM GRAIN, BUT LITTLE ELSEWHERE Food inflation on an upcycle, but likely moderate CPI food inflation Economist food index in Rand Graphs below year-on-year % change Maize & Wheat CPI food inflation PPI food inflation Weighted futures prices CPI grain Fruit, meat & vegetables Weighted market prices Weighted CPI

39 RAND SENSITIVE INFLATION COMPONENTS 3 2 Vehicles Furniture Appliances Clothing & footwear Vehicles Clothing & footwear Appliances Furniture

40 FORECAST RISING TOWARDS YEAR-END; COULD TOP TARGET IN Q1 15 Cycle still moderate 15 1 Assumptions Rand/$: end 15; end 16 Oil $/bbl: 65 avg 15; 7 avg 16 Electricity: +13% in 15, +13% in 16 etc Food infl: 5.% end 15; 6% end Forecast July: 5.3%; Dec: 6.% Avg: 5.% in 215; 5.5% in

41 Low return world

42 PRICE: LONG-TERM ASSET ALLOCATION VIEW Real return View Comment SA Neutral More balanced outlook Equity 5.% Neutral Key risk is earnings delivery as economy battles Property 4.5% Neutral Growing risk following huge bull market Bonds 2.5% + Lack of alternatives makes SA bonds attractive Cash.5% Hawkish Reserve Bank helping boost returns Global* Neutral Maintain diversification for risk management Equity 5.% + Best risk adjusted returns Bonds -1.% Record low yields = low returns Cash -1.% Cash is trash 42 NB: These are long-term, real returns expected over the next five years, as at 15 July 215 * The international return expectations above are in US Dollar terms; any rand depreciation will add to returns in rands.

43 SA MACRO FORECASTS FOR INDICATOR Avg Avg 94-3 Avg HCE GFCF GDP C/A : GDP R/$: y/e Target CPI: avg Prime: y/e , MacroSolutions: 4 August 215

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