Absa Investments “SCROUNGING FOR GROWTH” Craig Pheiffer General Manager: Investments Absa Asset Management Private Clients.

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Presentation transcript:

Absa Investments “SCROUNGING FOR GROWTH” Craig Pheiffer General Manager: Investments Absa Asset Management Private Clients

Global economic data has continued to disappoint Manufacturing PMI’s Global China Euro area Source: JP Morgan, Markit, Bloomberg

Growth expectations have been lowered across the board Oct 2011 Oct 2012 US Euro area UK Japan Brazil Russia India China S Africa WORLD GDP growth expectations for Source: Barclays Capital Growth risks are still to the downside

This has necessitated further policy action Quantitative easing III - $40bn of monthly purchases in an open- ended programme. Commitment to keep interest rates at 0.0% % into [$2,3tn was spent on QE1 & QE2] Interest rate cut of 25bp in July to 0,75%, Outright Monetary Transactions (OMT) programme introduced. [Another 25bp rate cut is expected on 6 Dec] Asset purchase programme increased to £375bn, “Funding for Lending Scheme” (FLS) introduced. [Expect MPC to loosen policy at its Nov meeting, with a £50bn extension of asset purchases and, more speculatively, a 25bp cut in Bank Rate] Asset purchase programme increased by ¥10 trillion ($126bn) to ¥80 trillion. Interest rates remain at 0,0% to 0,1%. Reserve requirements ratios for banks reduced, Interest rate cuts in June and July.

Interest rates are set to stay lower for longer JP US EU UK Key Central Bank interest rates Source: I-Net Bridge

Quarterly central bank interest rate forecasts to Q US, UK, EU, Japan forecast interest rates Source: Barclays Capital Global Economics Weekly (05 Oct 2012) Current rate Q1Q2Q3Q4Q1Q2Q3Q4 US 0.25 UK EU BoJ 0.10 Interest rates are set to stay lower for longer

Europe still the major concern Manufacturing PMI’s Source: JP Morgan, Markit, Bloomberg

Source: Barclays Capital Global Economics Weekly (05 Oct 2012) DEVELOPED US Euro area UK Japan DEVELOPING Brazil Russia India China S Africa Y/Y WORLD Q/Q (saar %) Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 US Euro area UK Japan Y/Y % Changes in GDP: DEVELOPEDY/Y % Changes in GDP: DEVELOPING Q/Q % Changes in GDP: DEVELOPED Global growth outlook

The South African Economy

OctJulMay The SARB’s South African outlook (Oct/Jul/May 2012) Inflation Source: SARB MPC Policy Statement (19 July 2012), SARB Monetary Policy Review (29 May 2012), SARB Governor address to Nordic Business Chamber of SA (2 October 2012). GDP OctJulMay *4.1 * Not mentioned

Real Retail Sales (%): Corporate profits declining  falling remuneration  lower disposal income growth  lower household consumption (Debt/Disposable income still high). PMI < 50  lower manufacturing. [Manufactured exports = 27% of local manufacturing industry] Mining strikes  lower production. Manufacturing (%): Mining production (%): Jul: 4.2% y/y Jul: 5.8% y/y Jul: 6.7% y/y Faltering contributions to domestic GDP growth

Source: Barclays Capital Global Economics Weekly (05 Oct 2012) % Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 GDP (q/q) CPI (y/y) CA Deficit : GDP Repo rate Forecast: GDP (Y/Y) Y/Y % Changes in GDP: Quarterly data: South African economic outlook

A last word on the currency Rand vs US Dollar: Source: Bloomberg Negatives: Trade/Current account deficit Rating downgrade (politics/finances/unrest) Positives: Global fiscal & monetary stimulus  “Risk on” Citi World Government Bond Index inclusion

THANK YOU