Nedbank Weekly Economic Monitor

01 Nov.

Nedbank Weekly Economic Monitor: Review of 24 to 28 October and preview of 31 October to 4 November 2011.

• Global equity markets gained on news that European leaders have reached an agreement that will help to resolve the European debt crisis.
• National Treasury has revised fiscal deficit forecasts higher to 5,5% (from 5,3%) for 2011/12, 5,2% (4,8%) for 2012/13, 4,5% (3,8%) for 2013/14 and forecast 3,3% for 2014/15.
• Private sector credit extension for September came out weaker than expected, easing to 5,5% y-o-y from 6,1 % y-o-y in August.

Domestic

News that at the end of its four-day summit on Thursday, the European Union (EU) had agreed on a deal which will help to resolve the European debt crisis lifted sentiment. This, together with higher precious metal prices, boosted the rand, with the local unit ending the week at R7,71, R10,91 and R12,43 against the US dollar, the euro and the British pound respectively, up from R8,02, R11,14 and R12,78 at the previous week’s close.

Bonds strengthened in line with the rand, with yields on the benchmark R157 2015 and R186 2025 falling to 6,55% and 8,23% on Friday from 6,69% and 8,41% a week earlier. The 3-, 5- and 10-year BESA actuaries dropped to 6,25%, 6,99% and 7,93% respectively from 6,39%, 7,14% and 8,10%.

Money market rates were largely steady. The 3-, 6- and 12-month JIBAR ended at 5,5%, 5,66% and 5,83%, unchanged from the previous week’s closes, while the 9-month JIBAR eased slightly to 5,73% from 5,74%.

Global equities rose on the EU deal. The FTSE-JSE all share index gained 4,6% over the week, ending at 32 894,1 on Friday. Industrials and financials were 4,0% and 2,1% higher at 34 982,6 and 21 930,6 respectively, while basic materials rose by 6,8% to close 29 922,1, with the gold and platinum indices up by 9,4% and 6% respectively.

In his presentation of the Medium-Term Budget Policy Statement (MTBPS), Minister Pravin Gordhan indicated that less favourable global environment combined with a domestic slowdown, related partly to labour strikes in key production sectors, have prompted the National Treasury to revise its growth forecasts downwards. Economic growth is forecast at 3,1% in 2011, down from the February 2011 projection of 3,4%, but growth is projected to pick up over the remainder of the Medium-Term Expenditure Framework (MTEF) period (2011/12 – 2014/15). A key driver of growth will be household expenditure, but its growth rate will be limited by the still weak job market, consumer indebtedness and subdued growth in real consumer incomes. Fixed investment spending growth projections have been revised downwards, but will remain reasonable on the back of public sector investment.

Export growth will be subdued given the poor prospects in key trading partners, but is expected to pick up over the next two years, while the performance of imports is projected to remain relatively firm due to higher consumer expenditure and reasonable growth in fixed investment. The current account deficit is expected to be narrower than was projected in the February budget, while inflation is forecast to remain close to the 6% level over the forecast period. …

See the full monitor at Weekly Economic Monitor