nedbank master ppt - caeo · nicky weimar may 2018 south africa hope springs eternal. 2...

1 Presentation name | Thursday, 24 May 2018 | Slide No. 1Nedbank Limited Reg No 1951/000009/06. Authorised financial services and registered credit provider (NCRCP16).

Nicky Weimar

May 2018

South Africa

Hope springs eternal

2 Presentation name | Thursday, 24 May 2018 | Slide No. 2

The political landscape changed for the better

Changes in political leadership mostly positive• Cyril Ramaphosa elected as new leader of the ANC in December 2017

• Jacob Zuma resigned as SA President on 14 February 2018

• Cyril Ramaphosa sworn in as SA’s 5th President since 1994 on 15 February 2018

• President Ramaphosa reshuffled his cabinet on 26 February 2018:

Maintained some controversial figures in his cabinet, but changed their portfolios

Placed experienced, respected & honest individuals in charge of economic ministries:

o Nhlanhla Nene returns to Finance & Pravin Gordhan takes on Public Enterprises

o Rob Davies stays at Trade and Industry & Ibrahim Patel at Economic Planning

o Jeff Radebe takes over Energy & Gwede Mantashe heads up Mineral Resources

Focus on rooting out corruption• Judicial Commission of Inquiry into State Capture

• Announce sweeping changes to the Eskom Board & Executive

• Revitalised NPA to take action on state capture where evidence already exists

• Commission of Inquiry into Tax Administration and Governance of SARS

• Suspends Tom Moyane as SARS Commissioner on 19 March 2018, replaced by Mark Kingon

Decisive measures to restore fiscal discipline• National Budget well received, reflecting faster pace of deficit reduction

• Moody’s left SA’s local and foreign currency rating unchanged at Baa3 (one notch above

junk), but changed the ratings outlook from negative to stable

Economic policies still unclear and patchy, with some concerning elements


National Budget 2018 was a significant improvement on last year’s MTBPS, projecting a moderately faster pace of deficit reduction

Source: National Budget Review 2018


Government’s debt burden continues to rise, but at a slower pace, stabilising sooner

Source: National Budget Review 2018


Leadership changes & a more decisive budget convinced Moody’s to leave SA’s sovereign risk ratings unchanged at investment grade

Source: Various Rating Agencies

Sovereign risk ratings status

Foreign-currency debt Local currency debt Outlook

Fitch BB+ BB+ Stable

S&P Global BB- BB+ Stable

Moody's Baa3 Baa3 Stable

Why does it matter?• Affect borrowing costs• Required for the inclusion of SA’s

sovereign bonds into Citi’s World Government Bond Index


Confidence bounced back strongly

Nedbank Group Economic Unit

Source: RMB, FNB & BER


The positive changes in leadership and the rise in confidence have been most visible in the rand, which bounced back from mid-December last year


Source: Thompson Reuters


…which combined with much lower inflation, convinced the Reserve Bank to cut interest rates in March

Sources: Stats SA


The Reserve Bank cut interest rates by another 25 basis points in March, taking the prime lending rate down to 10%




Global conditions were supportive in 2017 and remained so in early 2018Most advanced countries fared better than expectations


US growth accelerated in 2017 China remained resilient despite slower pace

Germany’s growth best expectations Japan’s posted a far more consistent performance


Global commodity prices were mixed in early 2018, but still above levels reached a year ago


Source: EIU


A growing world economy generally generates positives risk appetite among global investors




If global risk appetites for emerging market assets hold up, the rand should remain relatively firm

Sources: NGEU


The economy is still weak, but signs of improvement emerged around the middle of last year.

Source: Stats SA & Nedbank GEU


In 2017 the improved growth performance was mainly driven byrecoveries in agriculture and mining



Broad sectors Growth rates (y-o-y % change) Size

2017 2016 2015 % of GDP

Agriculture 17.7 -10.2 -6.4 2.2

Mining 4.6 -4.2 3.1 7.0

Finance 1.9 2.3 2.6 18.0

Transport & Comms 1.5 0.8 1.4 9.0

GDP 1.3 0.6 1.3 100.0

Personal services 1.2 1.5 1.0 5.1

GDP excl agriculture 0.9 0.9 1.5 97.8

Government 0.3 1.4 1.0 15.6

Electricity & water 0.2 -2.3 -1.7 3.3

Manufacturing -0.2 0.9 -0.4 11.9

Construction -0.3 1.1 1.8 3.6

Domestic trade -0.6 1.7 1.9 13.6


Economic activity has been weaker in early 2018. Growth is still up compared with Q1’17 but probably contracted compared with Q4’17



Industries Growth rates (y-o-y % change)

YTD 2018 2017 2016

Freight 5.7 5.0 0.9

Building plans passed 4.0 -7.8 3.6

Retail sales 3.8 2.9 1.7

Motor trade 2.4 -11.0 1.4

Electricity 1.8 0.2 0.0

Buildings completed 0.9 12.9 1.8

Manufacturing 0.4 0.3 0.0

Wholesale sales -0.3 -3.0 2.1

Mining -1.8 2.7 0.5

Hotels -3.3 -10.0 10.7

Catering -3.9 -13.6 0.7

Passenger transport -6.6 -7.4 0.9

Agriculture (summer crops) -20.9 105.6 -19.0


Outlook for 2018 and beyond?

Where to from here?

ADD BUSINESS UNIT NAME ON SLIDE MASTER


The world economy is expected to remain supportive in 2018, but downside risks have increased


Source: IMF WEO Jan 2018

IMF World Economic Outlook

(Annual % change in GDP in constant prices)

Historical data Latest forecast Previous forecasts

Actual Actual Estimate April 2018 update January 2018 update October 2017 forecasts

2015 2016 2017 2018 2019 2018 2019 2017 2018 2019

World output 3.4 3.2 3.7 3.9 3.9 3.9 3.9 3.6 3.7 3.7

Advanced countries 2.2 1.7 2.3 2.5 2.2 2.3 2.2 2.2 2.0 1.8

US 2.9 1.5 2.3 2.9 2.7 2.7 2.5 2.2 2.3 1.9

Euro Area 2.0 1.8 2.4 2.4 2.0 2.2 2.0 2.1 1.9 1.7

UK 2.2 1.8 1.7 1.6 1.5 1.5 1.5 1.7 1.5 1.6

Japan 1.1 1.0 1.8 1.2 0.9 1.2 0.9 1.5 0.7 0.8

Emerging & developing countries 4.3 4.3 4.7 4.9 5.1 4.9 5.0 4.6 4.9 5.0

Russia -2.8 -0.2 1.8 1.7 1.5 1.7 1.5 1.8 1.6 1.5

Developing Asia 6.8 6.4 6.5 6.5 6.6 6.5 6.6 6.5 6.5 6.5

China 6.9 6.7 6.9 6.6 6.4 6.6 6.4 6.8 6.5 6.3

India 8.0 7.1 6.7 7.4 7.8 7.4 7.8 6.7 7.4 7.8

ASEAN-5 4.9 4.9 5.3 5.3 5.4 5.3 5.3 5.2 5.2 5.3

Developing Europe 4.7 3.2 5.2 4.3 3.7 4.0 3.8 4.5 3.5 3.3

Latin America & Caribbean 0.1 -0.7 1.3 2.0 2.8 1.9 2.6 1.2 1.9 2.4

Brazil -3.8 -3.5 1.0 2.3 2.5 1.9 2.1 0.7 1.5 2.0

Mexico 2.7 2.9 2.0 2.3 3.0 2.3 3.0 2.1 1.9 2.3

Middle East & North Africa 2.6 4.9 2.5 3.4 3.7 3.6 3.5 2.2 3.2 3.2

Sub-Saharan Africa 3.4 1.4 2.7 3.4 3.7 3.3 3.5 2.6 3.4 3.4

Nigeria 2.7 -1.6 0.8 2.1 1.9 2.1 1.9 0.8 1.9 1.7

South Africa 1.6 0.6 1.3 1.5 1.7 0.9 0.9 0.7 1.1 1.6


US Tax reform: First significant change since 1986

Corporate tax rates

Current Law Tax Cuts and Jobs Act Rate change

35.0% 21.0% -14.0%

Individual tax rates - Single filers


10.0% $0-$9,525 10.0% $0-$9,525 0.0%

15.0% $9,525-$38,700 12.0% $9,525-$38,700 -3.0%

25.0% $38,700-$93,700 22.0% $38,700-$82,500 -3.0%

28.0% $93,700-$195,450 24.0% $82,500-$157,500 -4.0%

33.0% $195,450-$424,950 32.0% $157,500-$200,000 -1.0%

35.0% $424,950-$426,700 35.0% $200,000-$500,000 0.0%

39.6% $426,700+ 37.0% $500,000+ -2.6%

Individual tax rates - Married couple filing jointly


10.0% $0-$19,050 10.0% $0-$19,050 0.0%

15.0% $19,050-$77,400 12.0% $19,050-$77,400 -3.0%

25.0% $77,400-$156,150 22.0% $77,400-$165,000 -3.0%

28.0% $156,150-$237,950 24.0% $165,000-$315,000 -4.0%

33.0% $237,950-$424,950 32.0% $315,000-$400,000 -1.0%

35.0% $424,950-$480,050 35.0% $400,000-$600,000 0.0%

39.6% $480,050+ 37.0% $600,000+ -2.6%

Other changes: Estate Duty exemptions

Current Law Tax Cuts and Jobs Act Change

$5.6 million $11.2 million $5.6 million

US tax reform is significant & should boost growth over next 2 years


Source: US IRS Tax Cuts & Jobs Act

Fiscal impact:

Period 2018-2027:

Budget deficit:

• +$1.7 trillion

Gross debt:

• Increase from 91.2% of

GDP in June 2017 to

97.5% of GDP


The key risks remain that US interest rates rise faster than is currently expected as inflation increases more rapidly than anticipated




Exports are forecast to be a main driver of growth over the next three

years

Positives:• Stronger global demand

• Firmer commodity prices

Negatives:• A stronger rand

• Competitiveness problems – structurally high production costs

• Continued policy and legislative uncertainties

• Global downside risks remain – Potential of a trade wars between the world’s largest

economies & various geopolitical conflicts from between the US and North Korea, the West

and Russia

Major beneficiaries:• Mining

• Manufacturing

In 2018 the positives are likely to outweigh the negatives, but downside risks are

mounting


Exports are forecast to provide some momentum

Sources: NGEU


Fixed investment will probably be slow to recover

Positives:• Improved business confidence

• Stronger global demand

• Firmer international commodity prices

• Marginally lower interest rates

Negatives:• Policy and legislative uncertainty persists – mining charter & land expropriation without

compensation (section 25) & renegotiation of Automotive Production & Development

Programme with higher local content requirements to earn export credits & regulation

impacting tourism

• Political resolve & difficult trade offs will be required to tackle difficult structural reforms.

Hard to see progress on these fronts in the year ahead of a general election

• SOE finances & capacity remain a constraint at best and a threat at worse

• Economic infrastructure still expensive & unreliable

• Labour legislation, costs & productivity remain constraints

• Greater cost competiveness hard to achieve when legislation tends to have the

opposite effect

• Willingness to open market access both externally and internally not clear

• Still considerable excess capacity in manufacturing

Higher production and exports likely to drive growth

Fixed investment will probably be slow to recover


Fixed investment is forecast to improve slowly off a low base


Job creation is likely to remain limited

Sources: NGEU


Households remained wary of taking on additional debt. Household debt levels receded to levels last seen in late 2006


Source: SARB Quarterly Bulletin


Inflation was mainly dragged down by much lower food inflation. This is unlikely to be repeated in 2018

Sources: Stats SA


Oil prices are also rising, recently aggravated by geopolitical concerns

Sources: Thompson Reuters


If global risk appetites for emerging market assets hold up, the rand should remain relatively firm

Sources: NGEU


We believe that political dividend has been priced in and that the rand is likely to drift weaker during the remainder of the year

Sources: NGEU

Quarterly exchange rate forecasts

2018 2019

End of period: Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

$-Rand 11.81 12.64 12.89 13.02 13.15 13.55 13.41 13.68

Euro-$ 1.23 1.20 1.17 1.17 1.15 1.15 1.15 1.14

$-Yen 106.67 110.94 111.49 111.49 112.05 112.05 112.61 112.61

GBP-$ 1.41 1.34 1.31 1.31 1.31 1.31 1.30 1.30

Euro-Rand 14.54 15.11 15.11 15.18 15.18 15.56 15.38 15.60

Rand-Yen 9.03 8.78 8.65 8.56 8.52 8.27 8.40 8.23

GBP-Rand 16.61 16.92 16.92 17.09 17.18 17.69 17.43 17.78


Inflation is expected to drift higher in the months ahead & remain sticky around 5%.

Sources: Stats SA


Interest rates are forecast to remain steady until the second half of next year, when SARB is expected to embark on a mild tightening

Sources: NGEU


Household spending unlikely to grow by much more than 2% in 2018

Positives:• Improved consumer confidence

• Generally firmer household finances

• Steady inflation

• Marginally lower interest rates

Negatives:• Higher taxes – 1% hike in VAT rate to 15%, higher fuel taxes and excise and other duties

• Employment and wage growth will probably remain relatively slow

The positives are expected to outweigh negatives in 2018, helping to maintain

spending of around 2%.


Consumer spending should pick up some pace as year progresses

Sources: Stats SA & NGEU


GDP growth forecast at just below 2% in 2018 and 2019

Sources: Stats SA & NGEU


Economic forecasts


2012 2013 2014 2015 2016 2017 2018 2019 2020

Economic growth - Annual growth rates (%)

Consumer spending 3.7 2.0 0.8 1.8 0.8 2.2 2.0 1.8 2.2

Fixed investment 2.6 7.2 1.7 2.3 -3.9 0.4 1.5 1.8 2.6

Exports 0.8 4.0 3.6 3.9 -0.1 -0.1 3.7 4.7 5.2

Imports 4.2 5.0 -0.6 5.4 -3.7 1.9 4.2 4.6 5.8

GDP 2.2 2.5 1.7 1.3 0.3 1.3 1.8 1.9 2.4

Balance of Payments

Current Account (R'bn) -166.9 -208.1 -202.3 -177.9 -141.6 -114.3 -123.0 -131.4 -151.7

As % of gdp -5.1 -5.9 -5.3 -4.4 -3.3 -2.4 -2.4 -2.2 -2.3

Interest rates - Year-end rates

3-month JIBAR 5.13 5.22 6.13 6.63 7.36 7.16 6.81 7.21 7.34

Prime 8.50 8.50 9.25 9.75 10.50 10.25 10.00 10.25 10.50

Long bond 6.76 7.95 7.87 9.69 8.92 8.82 8.50 8.35 8.50

Exchange rates - Annual averages

Rand/US$ 8.22 9.66 10.86 12.77 14.71 13.26 12.53 13.39 13.54

Rand/Euro 10.57 12.83 14.34 14.10 16.22 15.06 14.98 15.40 15.44

Rand/GBP 13.03 15.10 17.88 19.53 19.87 17.21 16.89 17.46 17.48

Yen/Rand 9.71 10.11 9.75 9.48 7.39 8.45 8.79 8.38 8.33

Inflation - Annual averages

New CPI 5.6 5.8 6.1 4.6 6.4 5.3 4.7 5.3 5.4

37 Presentation name | Thursday, 24 May 2018 | Slide No. 37Nedbank Limited Reg No 1951/000009/06. Authorised financial services and registered credit provider (NCRCP16).

Thank you.

nedbank master ppt - caeo · nicky weimar may 2018 south africa hope springs eternal. 2...

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