The latest Economic commentary.

9 December 2008

The Global Financial Crisis - Part 3: Central Banks and Financial Stability
In the wake of the current crisis some analysts argue that financial regulation reform will avert a recurrence. Others say financial crises are inherent to a market-based system, so authorities should clean up the mess because it will happen again. A third group holds that central banks should moderate asset price movements to prevent bubbles from forming in the first place.

3 December 2008

New challenges for monetary policy
Economic role players currently find themselves in unfamiliar territory. Financial markets are characterised by unprecedented volatility and tend to react strongly to every bit of news.

10 November 2008

The current account vs. the capital account: where should the emphasis be?
The current account of South Africa's balance of payments has constantly been in the news recently. It has been argued ad nauseam that the current account deficit makes the country overdependent on a sustained inflow of foreign capital.

But perhaps this is the wrong point of departure – should the focus not rather be on ways to improve the capital account?

06 October 2008

The global financial crisis Part 2: Reinventing the financial system
The financial crisis that has engulfed the world since August 2007 has yet to run its full course but it is has already irrevocably changed the financial landscape, especially in the Anglo-Saxon countries.

01 October 2008

The global financial crisis - Part 1
The latest bail-out plan that has been mooted in the US offers the possibility of drawing a line in the sand and laying the foundation for an eventual gradual recovery. How does it affect the outlook for the real economy and financial markets?"

4 September 2008

The downturn in the economy
The data with regard to economic activity in the second quarter, recently released by Statistics South Africa, could lead one to believe the downturn in the economy is not as bad as it seems. However, the distortion of the data as a result of the power outages in the first quarter, which were not repeated in the second quarter, should be viewed with circumspection.

6 August 2008

Is the rand overvalued?
The rand, surprisingly, has been riding high over the past month despite the current account deficit, falling commodity prices and weakening global economy. It now begs the question: Is the rand currently overvalued and is it necessarily set to depreciate sharply?

4 July 2008

Focus on economic growth
With inflation figures still surprising on the upside, the focus remains on further interest rate hikes. However, should inflation reach its peak in the third quarter as expected, it would be logical to assume that the peak in interest rates is also approaching.

The focus should now shift to the medium-term outlook for economic growth.

3 June 2008

200 basis points?!
The recent statement by the governor of the Reserve Bank, Mr Tito Mboweni, that the repo rate might be increased by 200 basis points in response to continued inflation pressure, certainly set the cat among the pigeons.

Not that this will necessarily happen – the current tightening cycle is far advanced and it is clear that the economy is cooling off rapidly. In fact, it would be an unusual step to accelerate the tempo of monetary policy tightening two years after the start of the cycle.

7 May 2008

The Reserve Bank's credibility
In recent months much has been said and written about the credibility of the South African Reserve Bank in the execution of its monetary policy. For some commentators it simply means that if the Reserve Bank wants to remain credible, it will have to continue hiking interest rates as the inflation outlook worsens.

However, monetary policy credibility is far more complex.

4 April 2008

Required: A new pricing model for Eskom
Eskom's recent request for an additional 53% increase in electricity tariffs caused shock waves. The reason proffered is mainly the sharp rise in the cost of coal and diesel since the beginning of 2008 and they emphasised that the request had nothing to do with their capital requirements.

10 March 2008

Quo vadis with exchange control?
One of the biggest surprises in Min. Trevor Manuel's recent budget speech was the further relaxation in SA's exchange control measures. The timing of the announcement says much of the confidence in the future of the SA economy.

21 February 2008

The 2008 National Budget – Business as usual!
Bearing in mind the circumstances, the 2008 National Budget is truly a remarkable document. In the face of all adversity, it is a bold budget that oozes confidence at a time of heightened negativity, and is therefore very appropriate.

7 February 2008

The National Budget - Part 2
It is highly unlikely that the upcoming national budget, to be delivered on 20 February, will hold any surprises. The macro-economic strait-jacket in which the SA economy finds itself at this point in time precludes any political heroics.

30 January 2008

The National Budget - Part 1
Post Polokwane, full attention is riveted on the upcoming national budget that will be delivered on 20 February. Implementing the policy proposals set at the ANC conference could have budgetary implications.

7 December 2007

Finding the right balance
South Africa's macro-economic policy makers are currently facing their greatest challenge since the rand crisis at the end of 2001.

7 November 2007

The policy debate that isn't
As the 2007 Medium-term Budget Policy Statement (MTBPS) claims not to be a "mini-budget" but a policy document, it should be welcomed, as fiscal policy continuity is of the utmost importance for overall policy continuity.

3 October 2007

The changing interest rate environment
The inflation rate is generally expected to fall decisively below the 6% upper end of the SARB's inflation targeting range in the second half of the year, and that the first rate cut will be delivered by then. In my view the repo rate will perhaps not be lowered as soon and as rapidly as is generally expected.

5 September 2007

Costly lessons
The volatility that has plagued financial markets during the past six weeks has not yet run its course, but it is clear that various role players, from policy makers to market participants, are learning costly lessons in the process.

1 August 2007

The way of least resistance
Some people feel the upper limit of the inflation rate target range to be raised from 6% to 7% and hey presto, end of problem! Others are of the opinion that the Reserve Bank should focus on core inflation, defined as CPIX inflation excluding energy and food. Doing either might cause more harm than good.

12 July 2007

The South African developmental state: myth or reality?
It is becoming increasingly popular to refer to South Africa as a so-called "developmental state". As this concept came into being as a result of the developmental model that Asian countries adopted in the past.

4 July 2007

Are workers right or wrong?
The past four years have been a period of exceptional prosperity for the world, as well as for the South African economy. The global economy grew by 5% per annum in 2003-2006, and South Africa has enjoyed a similar growth rate since 2004.

6 June 2007

The inflation challenge
The question is whether the rise in inflation is simply a temporary phenomenon or whether it is the forerunner of a shift to sustained higher inflation. In order to answer this question, one needs to start with the international picture, given South Africa's integration with the global economy.

2 May 2007

Those customs union payments ... again
The numerous requests I have received for more information regarding the significance of the payments South Africa makes to neighbouring countries under the Southern African Customs Union Agreement have compelled me to explain the matter in more detail.

The meek hawks
Judged by murmurings recently from that quarter, it would have come as no surprise if the Monetary Policy Committee (MPC) had decided to raise the repo rate further. What then caused them to shun this decision?

Walking the current account tightrope
The SARB made a point of preparing the market for a high current account deficit figure ahead of the release of the SARB quarterly report. Although the market's reaction was benign, the issue is still to be resolved.

The vulnerable rand
The recent volatility in the exchange rate of the rand has once again highlighted the rand's vulnerability to any change in sentiment, not to mention economic fundamentals. Although the latter are generally supportive of the rand, the ride ahead may nevertheless be choppy.

The economic implications of financial market volatility
The latest bout of volatility in global financial markets is the 5th since the start of the bull market in the second quarter of 2003. Unlike previous occasions, there is more concern now regarding its economic implications, globally and in SA.

When is a windfall a windfall?
The National Treasury deserves a pat on the back for the quick and decisive way in which it nipped in the bud the proposal that all commodity producers in South Africa should be subject to a windfall tax.

The 2007 / 08 National Budget
In my budget preview I expressed the view that this year's budget would not lend itself to much creativity, but as always the Minister of Finance has managed to spring a surprise or two on us.

Following the European option
The State President's announcement (State of the Nation Address on 9 February 2007) that South Africa is to introduce a wage subsidy for low-wage employees along with an earnings-related contributory social insurance system raises some interesting and important economic questions. Perhaps the final introduction is yet to be preceded by heated debate!

It's budget time again
It's not that the compilers of the upcoming national budget - to be presented to Parliament on 21 February 2007 - is incapable of being creative, but the constraints within which they have to operate at the moment unfortunately preclude any budget heroics.

The importance of economic stability
Apart from keeping inflation in check, central banks are faced with the challenge of accommodating other objectives from time to time, including the maintenance of financial stability. The extremely low levels of spreads and risk premiums in many asset classes globally, linked to high levels of leverage in the institutions that invest in them, indicate that current concern for issues of financial stability might be justified.

Provincial diversity
One of the most interesting statistical releases every year is the data regarding South Africa's Gross Domestic Product (GDP), which are published annually in November by Statistics South Africa. Last year's release was no exception.