Midterm Budget and Presidential Investment Summit

Wealth

Midterm Budget and Presidential Investment Summit

In the past week, two major economic events dominated news headlines in South Africa: the first being the midterm budget delivered by Finance Minister Tito Mboweni, and the second, the long awaited presidential investment summit held at the Sandton Convention Centre in Johannesburg. 

In the past week, two major economic events dominated news headlines in South Africa: the first being the midterm budget delivered by Finance Minister Tito Mboweni, and the second, the long awaited presidential investment summit held at the Sandton Convention Centre in Johannesburg.

Regrettably, the midterm budget did not provide clear indications on government plans for the economy, which was reflected in the response of the local currency and bond markets. The rand weakened most compared to its emerging-market peers and bond yields climbed to the highest level this year; while government’s latest debt projections increased the probability of a credit-rating downgrade that may push South Africa’s local-currency debt into junk status.

Finance Minister Tito Mboweni said government debt will peak two years later, and higher, than previously forecast, the fiscal gap will widen further, and state revenue will continue to undershoot.

President Cyril Ramaphosa obtained lift-off for his administration with the commitment of R290bn into the South African economy, most of the amount being invested over the next five to ten years, as indicated at the summit. Much of the commitment comes from the local industry. Economists believe local companies have up to R840bn on their balance sheets, with some of the money being committed at the summit.

Two local economic indicators were realised over the past week. Official data published by Statistics South Africa on Thursday indicate the annual headline producer price inflation for September has come in at 6.2% compared to 6.3% in August, while the headline consumer price index (cpi) annual inflation rate for September 2018 is 4.9%, unchanged from August 2018.

In the US, economists expected Q3 GDP to moderate after coming off a Q2 growth rate of 4.2%. Although the pace slowed down some, it did not match the forecast pace. An advance reading of the gross domestic product, the first of three, indicates that the economy expanded at a 3.5% pace, faster than the 3.3% consensus forecast, which is massive for an economy of this scale.

The next major global event expected to impact economies, is the upcoming November midterm elections in the US when President Donald Trump and his Republican party will face their first real electoral challenge since taking office. Here voters will decide on the fate of the bicameral legislature, which will be an indication of Trump’s position going into his second term of office.

 

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Market data provided by I-Net | News article provided by Securitas with 4D Wealth