ECONOMIC WEEK AHEAD: Build-up to budget dwarfs expected jump in inflation

ECONOMIC WEEK AHEAD: Build-up to budget dwarfs expected jump in inflation

2/16/2020

ECONOMIC WEEK AHEAD: Build-up to budget dwarfs expected jump in inflation

Uncertainty about the budget hangs over the main data release this week — CPI — and what it means for interest rates

16 February 2020 - 16:23 Lynley Donnelly Finance minister Tito Mboweni at the World Economic Forum in Davos, Switzerland, January 24 2020. Picture: GETTY IMAGES/ BLOOMBERG/ GEM ATKINSON President Cyril Ramaphosa’s state of the nation address last week kicked down the road the details on critical questions — specifically how SA will stabilise its public finances — and on to finance minister Tito Mboweni’s budget due out next week. This has upped the ante on what is already a difficult budget. Expectations are growing among economists that, thanks largely to slower economic growth, revenues are likely to disappoint. As a result, SA’s main budget deficit is expected to widen beyond the 6.2% predicted in the October medium-term budget policy statement (MTBPS). On the spending side, though Mboweni earmarked R150bn in savings needed over the coming three years, largely from the public sector wage bill, there is doubt from the likes of ratings agency Fitch that the amount can be reached in this budget, particularly as the wage agreement between the state and labour unions stretches to April 2021. In an economy with poor growth prospects, economists appear divided about whether the Treasury would take dramatic steps, such as lifting VAT to 16%, to shore up revenues. What Mboweni and his Treasury team can pull off will be the deciding factor in whether Moody’s Investors Service axes SA’s last remaining investment-grade credit rating, and the level of the market reaction that follows. The uncertainty around the budget hangs over the main data release due out this week: the consumer price index (CPI). In particular the question is what the January CPI, scheduled for release on Wednesday, could mean for the SA Reserve Bank’s next decision on interest rates. The next monetary policy committee announcement falls on March 19, after the budget but before the Moody’s ratings review due on March 27. Consumer inflation is expected to come in at a median 4.6% year on year, according to a Bloomberg survey of 13 economists. Though this is up on December’s rate of 4%, it will still be close to the midpoint of the Bank’s target range of 3%-6%. December’s print meant inflation in 2019 averaged 4.1%, its lowest level in 15 years, justifying the 25 basis point rate cut that the Bank delivered in January. After remaining benign for months, food prices are expected to add inflationary pressure in January, Jacques Nel, head of Africa macro at NKC African Economics, told Business Day. Even if the “notable increase” to 4.6% materialises, it would still be around the Bank’s midpoint and “in normal circumstances this would suggest there is scope to reduce rates to stimulate economic activity”, he said. But SA’s circumstances are “far from normal and the outlook is clouded by uncertainty”, he said. The state of the nation address “did not provide the clarity most were hoping for and in fact created additional questions, with the budget reading in February being hyped up even further”, Nel said. The Bank will wait to see how the budget is interpreted by markets before making its next move, he argued. Though food prices are likely to have increased in January, inflation is likely to remain muted, said Sanisha Packirisamy, economist at Momentum Investments. This is especially because the coronavirus outbreak has seen international oil prices drop, contributing to two petrol price cuts in January and February, and potentially another in March, she noted. There is “definitely room” for a second rate cut and potentially even a third, she argued. But the five-member monetary policy committee (MPC) appears to be weighing up the fiscal risks, encapsulated in the budget pressures, and the low levels of inflation supporting further cuts, she argued. The timing of the Bank’s decision will be “dependent on the reaction to an actual downgrade”, she argued. Though many market players believe the downgrade is already priced in, she said there may still be a “knee-jerk reaction” to a Moody’s outcome, which could make things “tricky” for the Bank if the currency experiences a sell-off. As such it is likely to exercise caution ahead of the Moody’s date, she argued. Read more: Business Day

Love at first flight - How a drone and a bubble secured a date for this couple during quarantine



Government must clarify limit of SANDF’s powers: Analyst - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.

President Ramaphosa’s COVID-19 message in Nguni - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.



US records 700 coronavirus deaths in a single day for first time - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.

R2bn from Rupert and Oppenheimer families a ‘pledge, not a donation’



Could gene mutations explain coronavirus cases in the young?

Africa's biggest city Lagos locks down to defend against coronavirus - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.



ECONOMIC WEEK AHEAD: Build-up to budget dwarfs expected jump in inflationUncertainty about the budget hangs over the main data release this week — CPI — and what it means for interest rates

PODCAST | Economic news of the week: Sona 2020The president delivered his fourth state of the nation address in a tense and frustrated atmosphere

POLITICAL WEEK AHEAD: State of the nation address to come under scrutinyMPs will debate the president’s speech during a joint sitting of the National Assembly and the National Council of Provinces De KLERK must GO, VIVA EFF VIVA We want him to apologise to the nation for inviting an Apartheid murderer de klerk during sona, the speaker thandi modise should apologise to the nation & parliament particularly EFF for kissing de klerk before or during sona

Mampara of the week: Julius MalemaThere he was in designer overalls, leading a mob of fellow Gucci revolutionaries in another embarrassing contest of who can scream the loudest. How did you get there honestly? 😂😂😂😂

The week in picturesIn pictures: President Cyril Ramaphosa finds himself on a number of podiums; elections are the focus of Ireland and the USA and; the coronavirus disrupts Valentine's day

MAVERICK LIFE: The week in pictures – 15 February 2020MAVERICK LIFE: The week in pictures – 15 February 2020 By Maverick Life Editors



A 90-year-old US woman recovered from the coronavirus, and she credits family, God, and potato soup

Health experts warn SA of second wave of COVID-19 after lockdown - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.

Masks and gloves can spread coronavirus: WC health dept

SAPS concerned about videos showing officers using excessive force during lockdown - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.

Covid-19 case confirmed in Alexandra township

Field workers to conduct door-to-door COVID-19 screening as cases rise - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.

New York welcomes hospital ship as coronavirus accelerates

Write Comment

Thank you for your comment.
Please try again later.

Latest News

News

16 February 2020, Sunday News

Previous news

Rusting factories and empty filling stations — how Bulawayo died

Next news

SA rallies behind Northern Cape farmers amid woeful government drought relief
Love at first flight - How a drone and a bubble secured a date for this couple during quarantine Government must clarify limit of SANDF’s powers: Analyst - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. President Ramaphosa’s COVID-19 message in Nguni - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. US records 700 coronavirus deaths in a single day for first time - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. R2bn from Rupert and Oppenheimer families a ‘pledge, not a donation’ Could gene mutations explain coronavirus cases in the young? Africa's biggest city Lagos locks down to defend against coronavirus - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. Trump warns Americans of a tough two weeks ahead in coronavirus fight - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. Scammer poses as Mogoeng Mogoeng, asks judges for money after ‘cousin dies’ WATCH: Youngsters drink and taunt Bheki Cele. Then they get arrested Mass COVID-19 testing takes place in Alexandra Minister Mkhize confirms 5 COVID-19 deaths in SA - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.
A 90-year-old US woman recovered from the coronavirus, and she credits family, God, and potato soup Health experts warn SA of second wave of COVID-19 after lockdown - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. Masks and gloves can spread coronavirus: WC health dept SAPS concerned about videos showing officers using excessive force during lockdown - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. Covid-19 case confirmed in Alexandra township Field workers to conduct door-to-door COVID-19 screening as cases rise - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader. New York welcomes hospital ship as coronavirus accelerates Africa a few weeks from height of coronavirus storm, says UN Was Credo Mutwa an apartheid apologist? Mpumalanga premier fights poison WATCH: Police and SANDF force Soweto residents to do hard exercise as punishment WATCH: Social distancing braai on street corners causes a stir