1. Portfolio Committee on Finance
Jac Laubscher
Chief Economist
Portfolio Committee on Finance
The Medium-term
Budget Policy Statement
1 November 2002

2. Macro-economic trends
Government contribution to growth has turned positive
Private capital spending trend encouraging
SA bucking the global trend, but for how long?

3. SA vs. USA GDP growth

4. Macro-economic trends
Government contribution to growth has turned positive
Private capital spending trend encouraging
SA bucking the global trend, but for how long?
Steady growth to continue

5. Economic growth volatility: 1994 - 2001
High
Ave.
SA ave.
Low
Source: IMF World Economic Outlook; May 2002

6. Macro-economic trends
Government contribution to growth has turned positive
Private capital spending trend encouraging
SA bucking the global trend, but for how long?
Steady growth to continue
Employment to start benefiting

7. Productivity growth vs. job losses

8. Macro-economic trends
Government contribution to growth has turned positive
Private capital spending trend encouraging
SA bucking the global trend, but for how long?
Steady growth to continue
Employment to start benefiting
Rand outlook steady

9. R/$ 12-week moving average

10. Macro-economic trends
Government contribution to growth has turned positive
Private capital spending trend encouraging
SA bucking the global trend, but for how long?
Steady growth to continue
Employment to start benefiting
Rand outlook steady
Inflation rate to decline sharply, but be aware of base effect
Interest rates at peak

11. Macro-economic policy
Shift in priorities from inflation to growth
Inflation target now realistic
Further structural decline in inflation will be difficult to achieve

12. The secular decline in inflation is intact

13. “If inflation expectations are primarily backward-looking and are dependent on movements in the aggregate inflation rate, exchange rate changes will tend to have a larger and more persistent impact on both aggregate and non-traded inflation, as they get built into expectations. If on the other hand, inflation expectations are forward-looking, temporary exchange rate changes (which are recognised as being so by wage and price-setters) will not lead to much movement in inflation expectations. This is a key part of the process that affects the extent to which exchange rate changes lead to a temporary boost to inflation rather than a permanent pick-up.”
Source: Guy Debelle and Jenny Wilkinson: Inflation targeting and the inflation process Some lessons from an open economy – Reserve Bank of Australia Jan.2002

14. Macro-economic policy
Shift in priorities from inflation to growth
Inflation target now realistic
Further structural decline in inflation will be difficult to achieve
Fiscal policy increasingly expansionary
Positive output gap must be maintained
Decline in general level of interest rates over

15. Public sector borrowing requirement vs. bond yields

16. Macro-economic policy
Shift in priorities from inflation to growth
Inflation target now realistic
Further structural decline in inflation will be difficult to achieve
Fiscal policy increasingly expansionary
Positive output gap must be maintained
Decline in general level of interest rates over
Savings / Investment must be point of focus
Exchange controls

17. Net foreign transactions : Equities (R’bn)
Technology
Bubble burst
Asian crisis
Russian
crisis
WTC attack
Foreigners voted with their feet
- Mining charter
- Financial charter
- Community reinvestment bill
- Slowdown in world growth
and earnings concerns (Worldcom)

18. Macro-economic policy
Shift in priorities from inflation to growth
Inflation target now realistic
Further structural decline in inflation will be difficult to achieve
Fiscal policy increasingly expansionary
Positive output gap must be maintained
Decline in general level of interest rates over
Savings / Investment must be point of focus
Exchange controls
Taxation of retirement funds
Further measures to encourage savings required

19. You
thank …